Primer on Employment Law
by
Ian Werker
Barrister & Solicitor

Updated October 2, 2000

Copyright (1999)

TABLE OF CONTENTS

Introduction
Human Rights Code - Preliminary Issues
Creating the Employment Relationship
Offer of Employment
Contents of the Employment Offer
- General
- Pre-employment Medical Examinations
- Probationary Period
- Other Conditions
- Confidentiality
- Non-Solicitation
- Non-Competition Covenants
- Fixed versus Indefinite Contracts of Employment
- Termination Provision in Contracts of Indefinite Employment
Employment Standards Act Considerations
Statutory Notice/Termination Pay under the Employment Standards Act
Statutory Severance Pay under the Employment Standards Act
Performance Management
Ending the Employment Relationship
- Resignation
- Termination for Cause
- Poor Performance as Cause at Common Law
- Termination Without Cause - Wrongful Dismissal
- Constructive Dismissal
- Damages For Wrongful Dismissal
- Employee's Duty to Mitigate Damages
Other Statutory Considerations


Introduction

This paper presents a brief overview of employment law issues that arise at various points in the employment cycle.
It begins by raising some points for consideration at the recruitment stage. This is followed by a section that highlights issues relating to making an offer of employment. Some sample clauses, "confidential", "non-solicitation" and "non-competition", are presented.
After canvassing some basic points on performance management, the paper summarizes issues that commonly arise in employment terminations.
The final section provides a few examples of statutory obligations that employers should consider before making a decision to terminate an employment relationship.

Human Rights Code - Preliminary Issues

Before recruiting an employee, an employer should review the proposed advertisement and any application form to ensure that they do not discriminate directly or indirectly in violation of the Human Rights Code on any of the following grounds:
* race
* ancestry
* place of origin
* colour
* ethnic origin
* citizenship
* creed
* sex
* sexual orientation
* age
* record of offences
* marital status
* family status
* disability (handicap)
The Human Rights Code also defines sexual harassment as a prohibited ground of discrimination.
The employer should make sure interviewers know not to ask questions that directly or indirectly discriminate on a prohibited ground.

Creating the Employment Relationship

Offer of Employment

There should be a written offer of employment for the candidate to sign and return before starting work if he/she accepts the job. The employment offer need not be in "legalese", but it should be carefully written as it will become the employment agreement.
After the employee has started to work, a question may arise regarding the enforceability of the offer/agreement signed.
Depending on the wording of the employment offer, any promotions or changes should be agreed upon in writing and in advance of the change. A "revised" employment agreement should expressly refer to continued provisions of the "old" employment agreement. If this is not done, there is a substantial risk that the "old" employment agreement will be unenforceable.

Contents of the Employment Offer

General

The contents of an employment offer will vary from one situation to the next depending on the type of employer and the position in question.
In general, the offer should set out the position offered, compensation and benefits (if any). Conditions of the offer or on-going employment should be clearly stated. It may be advisable to include a termination provision.
Pre-employment Medical Examinations
Human Rights Commission guidelines on pre-employment medical examinations state that they may be required only after a conditional offer of employment has been made. It is recommended that the test be specifically related to the real occupational requirements of the position in question.
Probationary Period
A new employee is not automatically on probation. If an employer wishes to establish a probationary period, the employment offer should clearly state the duration of the probation. If the consequence of not satisfying probation is termination of employment without notice at any time during or at the conclusion of the probationary period, the offer should also make this clear.
An employment agreement that specifies a probationary period is still subject to the minimum notice requirements of the Employment Standards Act. (See the chart below on page 12.)
During the probationary period, the employee should be given a fair opportunity to meet the requirements of the position. If problems arise, warn the employee in writing at the earliest possible time that:
* the employee is not meeting the standards; and,
* measurable improvement is required prior to the end of probation if the employee is to remain employed after the expiry of his/her probation.
In some cases, it may also be advisable to warn the employee in writing that the absence of any noticeable improvement may result in the termination of employment prior to the end of the probationary period.
Other Conditions
The offer of employment may be subject to other conditions. For example, if the offer of employment is conditional upon the candidate agreeing to sign a confidentiality agreement, or to adhere to a particular code of conduct, this should be clearly stated in the offer of employment. The relevant provisions should be in the offer or in a document referenced in and attached to the offer of employment.
Some sample clauses are discussed below.
Confidentiality
If a contract is silent on the issue of confidentiality, an employee has an ongoing obligation to keep his/her employer's secrets confidential. This obligation survives the end of the relationship. It is becoming increasingly common to have employers incorporate confidentiality provisions in employment agreements. A sample provision may read as follows:
1. The Employee further agrees that he will not, during the period of his employment, except in the proper course of his duties, or as might otherwise be required by law, divulge to any person or use for his own purposes, or for the benefit or detriment of others, proprietary information or information relating to specifications, price lists, customer lists or private affairs of the Employer (collectively, "Confidential Information") that may come to his/her attention. The Employee further agrees that he shall use his/her best efforts to prevent the disclosure or publication of Confidential Information that may come to his attention.
2. All Confidential Information disclosed by the Employer to the Employee shall be considered confidential whether marked as such or whether disclosed verbally, visually or in writing.
3. The Employee agrees to keep Confidential Information secret and shall not, (without prior written authorization from the Employer), after the termination of his employment by either party for any reason, use Confidential Information for his/her own purposes or for the benefit or detriment of others, or disclose Confidential Information to others unless the information:
i) was known to the Employee prior to disclosure by the Employer as evidenced by a written document;
ii) was publicly available at the time of the disclosure to the Employee by virtue of a printed publication;
iii) subsequently becomes publicly available by virtue of a printed publication through no fault of the Employee;
iv) is subsequently and rightfully acquired by the Employee from a third party who is not in breach of a confidential relationship to the Employer with regard to such information.

A shorter clause dealing with the same issue might read as follows:

1. The Employee shall not (without written consent) either during or at any time after the termination of his employment use for himself or divulge to any person or persons any confidential information relating to the business affairs of the Employer and its affiliates and their respective customers which has come to his knowledge in the course of his employment.

Note in the next sample, the clause contains a provision in which the employee agrees not to breach any confidence owed to a former employer.

1. In the course of your employment you may acquire trade secrets, confidential or private information of Employer ("confidential information"), concerning, for example,
the names, address or requirements of customers or potential customers of Employer,
details of Employer application software and software developed by Employer for its customers,
prices, costs, margins and other financial affairs of Employer.
2. You acknowledge the confidential nature of such information, whether or not it is explicitly marked "confidential". You agree that, during the course of your employment or at any time after the termination of your employment for any reason, you will not
disclose confidential information to others, or
use confidential information to the detriment of Employer or for your own benefit or the benefit of others,
without prior written authorization from Employer.
3. You agree that you will not, in the course of your employment with Employer, breach any obligation of confidence that you may owe to others.

The detail appropriate for the clause will vary from one situation to the next.

Non-Solicitation

Non-solicitation clauses attempt to restrict a person from soliciting customers, suppliers, or employees from his/her former-employer.
The type of employee for whom this is a practical possibility is probably covered by common law obligations imposed on a high-level ("fiduciary") employee not to compete unfairly with his/her former employer. In the absence of a specific agreement on the point, a fiduciary may not take for himself or herself a business opportunity that he/she has been seeking on behalf of his/her former employer. Similarly, a fiduciary may not solicit business from his/her former employer's clients or customers within a reasonable time after the termination of the employment relationship.

The parties to an employment agreement may wish to codify these obligations in a non-solicitation clause as follows:

1. The Employee shall not, within a six month period following the termination of his/her employment for any reason, solicit business or attempt to solicit business, for himself or others, from any customers or potential customers on whose account or with whom the Employee dealt.

Note that this clause would not prevent the Employee from joining or establishing a competitive enterprise.

Non-Competition Covenants

A non-competition covenant attempts to restrict an employee from competing with his/her former employer. Such clauses are not enforceable unless they are determined by a court to be reasonable in terms of:
* the period of restriction,
* geographic scope of restriction, and
* legitimate interests of the employer that require protecting.
Accordingly they need to be drafted as narrowly as possible based on the specific circumstances of the employer. If a restrictive covenant is found to be unenforceable, a court will not "correct" it or substitute a less onerous restriction.

A sample clause might read as follows:

1. As a condition of employment, the Employee agrees that, he shall not, without written authorization from the Employer,
(A) compete with the Employer for himself or for another, within the * month period following the termination of his/her employment for any reason,
(B) within the market place he worked on behalf of the employer, namely, the area within a * kilometre radius of the Employer's premises at [insert address].
2. The Employee recognizes the employer's vulnerability in the market place. The Employee acknowledges that the duration and geographic scope of the above restriction are reasonable and will not preclude him/her from earning a livelihood following the termination of his/her employment for any reason.
3. The Employee agrees that, in addition to any other legal rights the Employer may have, it would be reasonable for the Employer to enforce the above restriction by way of a court injunction.
From an employee's vantage point, if the restriction is considered onerous, he or she may wish to negotiate a clause that ensures ongoing compensation from the employer during the restricted period that follows the termination of employment. Alternatively, an employee may wish to consider negotiating a clause that makes the employer choose to pay compensation for the period of restriction set out in the non-competition covenant or waive any rights to the covenant.

Fixed versus Indefinite Contracts of Employment

Most employment agreements are indefinite. In other words they do not have a specific termination date. It is open for an employer and employee to agree a set period of employment in a fixed term employment contract. Under a fixed term contract, the employer is bound to continue the employment until the expiry of the contract. If there is no specific termination provision and the employer terminates employment without cause before the expiry, then it is liable for the compensation that it would have paid over the balance of the contract period.
This may seem advantageous to an employee, particularly when the contract is in its early stages. However, an employee should also consider the position he or she will be in at the later stages of the fixed term agreement where the employer has not negotiated a renewal. In these cases, subject to applicable requirements of the Employment Standards Act, the employee will not be entitled to any additional notice of termination.
Any perceived "security" in a fixed term contract should be scrutinized if the contract has an early termination provision. For example, from the employee's vantage point, there is little to be gained from a one-year fixed term contract which the employer can terminate on two weeks notice.

Termination Provision in Contracts of Indefinite Employment

In the absence of a specific agreement on the point, the general rule is that an employee is entitled to reasonable notice of the termination of employment. If the employer does not give reasonable notice, the termination is considered "wrongful".
"Reasonable notice" is not based on a formula. It is an elastic measure that the courts determine on a case-by-case basis. Disputes regarding what constitutes reasonable notice is a major catalyst of wrongful dismissal litigation. To avoid disagreement over "reasonable notice," the parties may, at the outset, agree on the amount of notice or compensation the employer is required to provide to terminate the employment relationship without cause.
Such an agreement must provide for notice or payments in lieu of notice that meet the minimum requirements of the Employment Standards Act. If the agreement does not comply with the minimum requirements, it will not be enforceable and a court will apply the standard of "reasonable notice"
Conventional wisdom supports the inclusion of a termination provision in an employment agreement. This is because most litigation in the area of employment law arise where there is a dispute over what constitutes "reasonable notice" on the facts of the specific case. Obviously, if the notice period is defined in advance, there is much less room for debate when the relationship comes to an end.
In determining whether it is desirable to have a specific notice provision in an employment contact, employers and employees should consider how the provision compares to the "reasonable notice" requirement at time of hiring and various projected points in the future.
Where an employee has little or no bargaining power, then the employee may have little negotiating room if the employer proposes a termination provision. In these cases, the employee may have more bargaining leverage when he or she is being considered for a pay increase or promotion at a later time.

But, in some cases the employee has more bargaining power. Take, for example, a situation where the employee is being recruited away from a secure position elsewhere. In such situations, the employee being courted should compare the proposed written notice to a likely application of "reasonable notice" which would take the circumstance of recruitment into account. If the proposed termination provision does not do so, the employee would be better off without it.
A sample termination provision might read as follows:
1. Your employment may be terminated at any time for cause.
2. We may terminate your employment at any time during your first 12 months of employment without cause upon providing you with written notice of * month(s) or pay in lieu of notice (or at our option a combination of written notice or pay).
3. After you have completed 12 months' employment, the period of notice (or pay in lieu of notice) will increase by * month for each additional full year of employment up to a maximum period of notice or pay in lieu of notice of * months.
It is also important to look at whether a specified notice requirement is fixed or is based on a formula where the notice increases with length of service. Assuming the initial contract is enforceable, a fixed notice period may not be advantageous to a long-service employee who might be entitled to a longer period of "reasonable notice" if the contract were silent on the issue of termination.

Employment Standards Act Considerations

Generally speaking, the Employment Standards Act establishes certain minimum employment requirements for most employees in Ontario. It does not define the employer's entire legal obligations. Accordingly, if an employer wishes to limit its obligations to those that arise under the Act, this must be expressed clearly in an employment agreement. [For those employees who fall under federal jurisdiction (e.g. bank or airline employees), different minimum statutory requirements are set out in the Canada Labour Code.]

Statutory Notice/Termination Pay under the Employment Standards Act
The Employment Standards Act requires the employer to give the following minimum written notice of termination/termination pay:
Period of Employment
Notice/Pay in Lieu of Notice
more than 3 months, but less than one year
1 week
more than 1 year, but less than 3 years
2 weeks
more than 3 years but less than 4 years
3 weeks
more than 4 years but less than 5 years
4 weeks
more than 5 years but less than 6 years
5 weeks
more than 6 years but less than 7 years
6 weeks
more than 7 years but less than 8 years
7 weeks
more than 8 years
8 weeks
Different statutory notice provisions apply to a "group" or "mass" termination of 50 or more within a four-week period.

Statutory Severance Pay under the Employment Standards Act

In certain circumstances, the Act also provides for statutory severance pay. Statutory severance pay obligations arise if:
* the employer has an annual payroll of $2.5 million or terminates the employment of 50 or more employees within a six-month period, and
* the employee has 5 or more years of service.
Statutory severance pay is calculated based on a formula: 1 week of pay for each complete year of service plus 1/12 of a week of pay for each completed month in the last partial year, up to a maximum of 26 weeks' pay.
Statutory severance pay is distinct from statutory termination pay. It cannot be converted into working notice. However, the case law is currently uncertain about whether statutory severance pay is included in compensation provided at common law in lieu of notice. As a practical matter, it is usually treated as inclusive in most termination settlements.
Where an employment contract limits the employer's obligations to those established in the Employment Standards Act, employees should be aware that his/her entitlements on termination will not include an assessment of common law "reasonable notice" - unless the contract becomes superseded by a new one (either written or oral).

Performance Management

Good practices include:
* doing periodic, accurate, and balanced performance appraisals;
* dealing with matters promptly;
* confirming discussions in writing with the employee.
Generally, if the employee has not been shown a document or memorandum in his/her personnel file, the employer will have difficulty relying on it later.
If the employer imposes disciplinary warnings to an employee whose misconduct does not amount to cause, the warning should be in writing and should expressly caution the employee that subsequent misconduct will attract disciplinary response up to and including dismissal.
Depending on the conduct in question, a disciplinary suspension may be an appropriate response where employees are covered by a collective agreement. It is not common to impose disciplinary suspensions where the employment relationship is governed by an individual employment contract (oral or written).
An employer will likely be found to have condoned behaviour or conduct that it does not promptly bring to an employee's attention. An employer may not generally rely on previously condoned behaviour as a basis for subsequent discipline.
Employers should keep good records, including information required under the Employment Standards Act, which includes the name, address, pay per period, vacations/vacation pay for each employee.

Ending the Employment Relationship

Resignation
At common law an employee is legally required to give reasonable notice of a resignation, unless the employment contract specifies otherwise. A resignation must be voluntary to be legally effective. The Employment Standards Act does not impose a general obligation on employees to provide a minimum notice of intent to resign.
Termination for Cause
At common law, there is no set list of what constitutes cause to dismiss without notice. Cause will arise where the employee has failed to satisfy the basic employment obligation to act honestly and in the best interest of the employer.
The test is slightly different for the purposes of the Employment Standards Act, which looks at whether the employee has engaged in wilful misconduct or disobedience that the employer has not condoned.
An employer does not have to give notice where there is cause to terminate the employment relationship. It is important to note that, if the employer does not indicate at time of termination that it is dismissing the employee for cause, it will usually be precluded from later defending its position based on cause.
An employer should allege cause only after careful consideration of the circumstances and the evidence that would be available to prove its case. An insupportable allegation of cause can create a hardship for the employee, who may be denied unemployment insurance benefits as a result. If cause is alleged and not ultimately proven, the employer's liability and legal costs in a wrongful dismissal action will likely be higher.
The Record of Employment issued pursuant to the Employment Insurance Act should be consistent with the termination letter.
Poor Performance as Cause at Common Law
Poor performance will only amount to cause to terminate without notice in rare circumstances.
To satisfy the legal requirements to support an allegation of cause based on poor performance, the employer must advise the employee in writing that his/her employment is in jeopardy. The warning must:
* list the specific deficiencies in performance;
* state the objective standards the employee is required to meet;
* give the employee a reasonable time and guidance to meet those standards;
* make clear to the employee that failure to satisfy the standards will result in the termination of employment without notice.
Termination Without Cause - Wrongful Dismissal
In the absence of cause and where there is no express termination provision, the termination of employment is wrongful if the employer fails to provide reasonable notice. Reasonable notice cannot be defined by a formula. Courts look at each case individually and consider a variety of factors, including the employee's
* age,
* length of service,
* position,
* training and education.
Courts also consider the state of the employment market. Reasonable notice may range up to 24 months. In some cases it has ranged higher.
Where an employment agreement contains an enforceable termination provision, a termination is wrongful if the employer fails to give notice or compensation in accordance with the agreement.
Constructive Dismissal
A constructive dismissal may be defined as a unilateral imposition of a change by an employer to an existing employment agreement that objectively justifies the employee in treating the employment relationship as terminated.
Each case is judged on its own facts. Examples of constructive dismissal include a significant change in responsibilities, a reduction of pay or benefits, change in work location or hours, or imposition of shift work.
Where an employer makes a change that would otherwise amount to a constructive dismissal, it is still open for the employee to accept the change and continue the employment relationship.
To some degree, the risk of a future constructive dismissal claim can be reduced by a well drafted offer of employment/employment contract that gives the employer discretion to make periodic work reassignments or other changes. From an employee's vantage point, it is advisable to have any such discretion limited to changes that are commensurate with the nature of the employee's position.
Damages For Wrongful Dismissal
An employer is liable to compensate a wrongfully dismissed employee whose damages will generally include:
* salary that would have been received during the applicable notice period;
* commission that would have been received during the applicable notice period;
* bonuses that would reasonably have been received during the applicable notice period;
* the value of pension contributions that would have been made to a registered pension plan over the applicable notice period;
* the loss of insured benefits that have not been continued during the applicable notice period;
* mitigation costs (e.g., the costs of looking for other employment).
Refusal of an employer to pay the employee promptly any amounts due under the Employment Standards Act leaves the employer liable for additional compensation in the form of punitive damages.
Employee's Duty to Mitigate Damages
An employee is legally obliged to take reasonable steps to reduce (mitigate) his or her losses that flow from a wrongful dismissal. The employer's liability will be reduced to the extent the employee replaces lost income during the notice period. Note, however, that mitigation does not apply to amounts that the employee is entitled to receive under the Employment Standards Act. In constructive dismissal cases, the court will examine whether it would have been reasonable for the employee to mitigate a constructive dismissal by remaining with the employer.

Other Statutory Considerations
Employment legislation may afford an employee recourse to various statutory remedies in addition to suing for wrongful dismissal.
For example, where his or her employment is terminated contrary to the Human Rights Code, the employee may file a human rights complaint. A Board of Inquiry appointed under the Code has broad remedial power to order re-instatement and/or award compensation that may exceed pay in lieu of reasonable notice in a court action for wrongful dismissal.
Similarly, an employer who fails to re-employ or continue to employ an injured worker pursuant to the requirements of the Workplace Safety Insurance Act risks a complaint under that Act and is liable for significant penalties.
The Ministry of Labour enforces the Employment Standards Act. For example, an employer risks significant liability in the event of a claim that it has breached the pregnancy/parental leave provisions of the Act. In these types of situations, compensation awards for lost wages under the Employment Standards Act may be greater than damage awards in wrongful dismissal cases.
Under the Employment Standards Act, an employee must elect whether to use either the statutory procedure or a civil action. For a number of reasons, the statutory procedure will usually be the less attractive option. First, for statutory termination pay and/or severance pay claims under the Employment Standards Act, the monetary limit is currently $10,000. Second, in most cases, an employee's common law entitlements will exceed the minimum statutory requirements. Third, an employee who brings a claim under the ESA is deemed to have waived his/her claim for any additional common law damages and may not later sue to recover them. Fourth, the time limit for bringing a complaint under the act is generally 6 months. In comparison, the time limit for starting a civil action for wrongful dismissal is 6 years.
Finally, employers and employees should also be ware that an employee who has been the subject of a reprisal contrary to the Occupational Health and Safety Act may bring a complaint to the Ontario Labour Relations Board. The Board may award compensation for lost wages and has the power to order the employee re-instated.

This paper is for general information only. It is not intended to provide legal advice for any particular situation and should not be construed as doing so. If you have any specific legal questions you should contact a lawyer.

Primer on Employment Law by Ian Werker, B.A., LL. B. (c.1999)