Primer On Employment Law
This article presents a brief overview of employment law issues that arise at various points in the employment cycle, recruitment, offer of employment, performance management, employment termination.
The final section provides a few examples of statutory obligations that employers should consider before deciding to terminate an employment relationship.
Table of Contents
- Human Rights Code – Preliminary Issues
- Creating the Employment Relationship
- Offer of Employment
- Contents of the Employment Offer
- Fixed versus Indefinite Contracts of Employment
- Termination Provision in Contracts of Indefinite Employment
- Employment Standards Act Considerations
- Performance Management
- Ending the Employment Relationship
- Other Statutory Considerations
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:
- Ancestry, colour, race
- Ethnic Origin
- Place of Origin
- Creed (which includes Religion or No religion)
- Marital Status (including status as Single)
- Gender Identity, Gender Expression
- Record of Offences (provincial)
- Sex (includes Pregnancy and Breastfeeding)
- Sexual Orientation
The Human Rights Code also defines sexual harassment as a prohibited ground of discrimination.
In general, hiring practices should not directly or indirectly disadvantage candidates on any of the above protected grounds. An employer should take care so that application forms and interviewers do not stray into 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 the candidate accepts the job. The employment offer need not be in “legalese”, but it should be carefully written as it will become the employment agreement.
A written agreement required after an oral offer has been made and accepted (or after the employee has started in the job) will not be enforceable if it detracts from the oral arrangements agreed upon or implied by the common law.
Once the employment relationship is established, any proposed transfers/promotions should be commicated in writing in advance. A proposed change to an employment agreement should be supported by some fresh advantage (referred to as “consideration” in legal jargon). Without fresh consideration the new terms may not be valid or enforceable To avoid confusion, a “revised” employment agreement should expressly incorporate or refer back to any provisions of the old agreement that will continue without alteration.
Contents of the Employment Offer
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 state the
- position offered,
- compensation and
- benefits (if any).
Conditions of the offer or on-going employment should be clearly stated. It will usually be advisable to include a termination provision so as to reduce the risk of disputes later on if the employment relationship comes to an end. Care must be taken so that a termination provision meets or exceeds the legislated minimum requirements of the Employment Standards Act , 20000 or else the provision will not be enforceable. If the employment offer contains no explicit termination provision, common law rules requiring reasonable notice of termination/resignation will apply.
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.
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 of employment should make this clear.
An employment agreement that specifies a probationary period is still subject to the minimum notice requirements of the Employment Standards Act, 2000. (See the chart below.)An employer may only terminate a probationary employee without any notice or compensation in lieu of notice during the first three months of employment. If the period of probation exceeds three (3) months but is less then twelve (12) months, the employment agreement should state that release of a probationary employee after the first three (3) months will comply with minimum statutory requirements – currently at least one (1) week’s written notice or termination pay as required under the Employment Standards Act, 2000, plus vacation accrual and (if applicable) continuation of employer’s contributions to group insured benefits plans in which the employee is enrolled.
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 endof their 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.
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.
The Employment Standards Act, 2000requires that employers make certain information available to employees so that they will be aware of their rights. There are also safety awareness requirements that new employees must complete under the Occupational Health and Safety Act.
Given the prevalance of electronic devices in most workplaces, it is prudent to include a clear statement on what conditions will apply to their use. The statement should address questions of ownership, whether the devices may be used for personal communication and whether or not there is any expectation of privacy for employees in their use of the employer’s electronic devices, networks and systems.
Even 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. To avoid confusion on the point, it is advisablefor employers to incorporate confidentiality provisions in employment agreements.
Non-solicitation clauses in an employment contract attempt to restrict an employee or former employee from soliciting the employer’s customers, suppliers, or employees away from the employer.
The common law imposes obligations imposed on certain high-level (“fiduciary”) employees not to compete unfairly with a former employer.
- Generally, a fiduciaries may not take for themselves a business opportunity that they had been promoting on behalf of their former employer.
- Similarly, fiduciaries may not solicit business from their former employer’s clients or customers within a reasonable time after the termination of the employment relationship.
This is a complicated area where “less” is usually better than “more.” Courts have the power to disallow a restriction in an employment agreement unless the employer can show it is reasonable and goes no further than is needed to protect a legitimate interest. Accordingly, any proposed restriction should be drafted to fit the specific situation involved.
A non-competition covenant attempts to restrict an employee from competing with their former employer.
It is wider than a non-solicitation provisio that attempts to protect client relationships but does not seek to stop the former employee from engaging in the same business for a period of time after a departure.
In Ontario, a non-compete restriction will generally not be enforced if a non-solicititationprovsion would suffice.
A non-compete clause will generally not beenforceable unless a court determines it is reasonable in terms of:
- duration of the restriction,
- geographic scope of restriction, and
- legitimate interests of the employer that require protecting.
Non-competionclauses are more likely to be enforceable if they arise in the context of the sale of a business where the former owner sells a business, but continues on as an employee after the sale.
A court will not take a “blue pencil”(i.e. fix or re-draft) a restriction that it declares to be invalid.
Fixed versus Indefinite Contracts of Employment
Most employment agreements are indefinite. In other words they do not have a specific termination date. However, parties may agree to a contract for a definite (fixed) period of employment.
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 they will be in at the later stages of the fixed term agreement where the employer has not negotiated a renewal.
On the other hand, from an employee’s perspective, there is no advantage or predictability if the employment contract is for a fixed term but also contains an early termination provision. 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.
An early termination provision must still meet the minimum statutory requirements as set out in the Employment Standards Act, 2000. The Ontario Court of Appeal has held that if it does not, the employee will be entitled to be paid for the full balance of the contract.
Termination Provision in Contracts of Indefinite Employment
In the case of employment for an indefinite period, unless there is a specific enforceable termination provision, 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 are usually a 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 all the other the minimum requirements of the Employment Standards Act, 2000. 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” in the event of termination without just cause.
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 contract, employers and employees should consider how the provision compares to the “reasonable notice” requirement at the time of hiring and various projected points in the future.
The proposed terms of a termination provision in an offer of employment may be subject to negotiation just the same as any other element of the offer.
It may be tricky to build in a perfect severance provision into an employment offer/agreement. In a number of cases what may have appeared to be viable provisions have been found to be unenforceable because they offend the requirements of the Employment Standards Act, 2000. As a result, many employment agreements will include “saving provisions” that say the minimum requirements will apply and govern the employer’s obligations if the built-in severance clause is found to be defective.
Employment Standards Act Considerations
Generally speaking, the Employment Standards Act, 2000, 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 minimums 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, 2000
The Employment Standards Act, 2000, 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 and rules apply to a “group” or “mass” termination of 50 or more employees within a four-week period.
The Act provides that employers must accrue vacation pay up to the end of the statutory period under the above chart. As well, the employer must continue to make its contributions to benefits plans in which the employee participates, until the end of the statutory period.
The employer may satisfy the statutory notice requirement giving advance notice in writing equal to the applicable period or the equivalent in statutory termination pay instead. In other words, the employee may be required to work through the end of the statutory notice period.
Statutory Severance Pay under the Employment Standards Act, 2000
In certain circumstances, the Act also provides for statutory severance pay. Statutory severance pay is in addition to statutory notice/pay. The obligation to pay statutory severance arises 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.
Unlike statutory notice, the statutory severanceobligation cannot be “converted” into a period during which the employee is required to work. In other words, no period of working notice (even if it exceeds the minimum statutory notice requirement) will be credited toward an employer’s statutory severance pay obligation.
Where an employment contract limits the employer’s obligations to the minimums established in the Employment Standards Act, 2000, employees should be aware that their entitlements on termination will not include an assessment of common law “reasonable notice” – unless the contract is later superseded by a new one (either written or oral).
The Act contains a wide variety of exemptions which may affect the rights of a given employee.
It is worth noting that the test for dismissal for cause at common law is wider than the exemption for statutory termination notice/pay and statutory severance pay under the Act. So there may be situations where an employer has just cause for dismissal at common law but must still pay the minimum statutory termination pay and, where applicable, statutory severance to the employee.
The Fair Workplaces, Better Jobs Act, 2017 has added a number of new minimum requirements and restrictions to the Employment Standards Act, 2000. Some of the changes will take effect in stages. In general, new provisions include:
- Same pay for full and part-time workers performing the same jobs
- Increased vacation pay for employees with more than 5 years service
- New minimum call-in pay requirements for employees called in to work for a short shift
- Parameterson timing of shift changes
- Various new leave entitlements, including ten (10) days personal emergency leave, two (2) of them paid.
Good practices for managing employee work performanceinclude:
- 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 and given a document or memorandum in kept in the 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).
If an employer does not approve of a behaviour or conduct, and does not promptly bring it to an employee’s attention, the employer will likely be found to have condoned the behaviour or conduct. 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, 2000, which includes the name, address, pay per period, vacations/vacation pay for each employee.
Ending the Employment Relationship
At common law, an employee is legally required to give reasonable notice of a resignation, unless the employment contract specifies otherwise. What is “reasonable” will depend on the time it would take for the employer to manage a smooth transition of the employee’s responsibilities.
The question of whether an employee has voluntarily quit or been terminated will depend the evidence of the particular situation.
The Employment Standards Act, 2000, does not impose a general obligation on employees to provide a minimum notice of the intention to resign.
Termination for Cause
At common law, there is no set list of what constitutes cause to dismiss without notice. Cause (sometimes called “just 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.
As noted above, the test of what constitutes cause to dismiss without notice, is slightly different for the purposes of the Employment Standards Act, 2000. The Act looks at whether the employee has engaged in serious or wilful misconduct or disobedience that the employer has not condoned.
Subject to any applicable minimum statutory requirement, an employer does not have to give notice or pay in lieu of notice, where there is cause to terminate the employment relationship. It is important to note that, if the employer does not assert cause for dismissal at time of termination, it will likely be regarded to have waived the right to do so later on – unless previously unknown evidence of employee misconduct surfaces after the employee’s departure.
An employer should allege cause only after careful consideration of the circumstances and the evidence that would be available to prove its case. An unsupportable allegation of cause can create a hardship for the employee. An employer that alleges but does not prove cause for dismissal risks exposure to pay additional damages and higher court costs..
The Record of Employment (ROE) issued by the employer pursuant to the Employment Insurance Actshould be consistent with reasons provided in 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 expected 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. Contrary to what many believe, courts will not automatically award an employee 1 month’s notice for each year of service. Instead, courts look at each case individually and consider a variety of factors, including the employee’s:
- length of service,
- position, and
- training and education.
In recent cases, the nature of position (at least for what may be regarded as lower-ranking roles) appears to be a less important factor to justify a shorter notice period in comparison to others, where attributes of age and service are similar.
Courts may also consider the state of the employment market.
Unless there has been bad faith conduct on the part of the employer, the upper limit of reasonable notice is generally considered to be 24 months. But there are some cases where longer notice has been awarded.
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.
A constructive dismissal may be defined as a:
- material and unilateral alteration of pre-existing terms and conditions of employment
- by the employer
- without proper notice
- without the employee’s consent.
Each case is judged objectively 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, the employee may choose to accept the change and continue the employment relationship.
To some degree, an employer can reduce the risk of a future constructive dismissal claim 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.
Where the employer has reasonably made work available and the employee is found to have acted rashly in refusing to stay on after being given the opportunity to do so, a court may determine that a constructive dismissal has occurred, but award the employee no damages because the employee’s lack of income flows from the unreasonable refusal to remain, rather than the constructive termination.
Damages For Wrongful Dismissal
An employer is liable to compensate a wrongfully dismissed employee for the pay and benefits the employee would have received if the employer had provided proper notice under the applicable contractual arrangement.
Damages for wrongful dismissal may 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, 2000, leaves the employer liable to pay additional damages.
Egregious conduct by an employer leading up to, during, and after a termination will also expose an employer to liability for additional damages. Other additional damages may be awarded where the employer’s conduct also violates the Human Rights Code.
Employee’s Duty to Mitigate Damages
An employee is legally obliged to take reasonable steps to reduce (mitigate) the losses that flow from a wrongful dismissal.
The employer’s liability will be reduced to the extent that the employee replaces lost income during the applicablenotice period. Note, however, that mitigation does not apply to amounts that the employee is entitled to receive under the Employment Standards Act, 2000.
As noted above, 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 tribunal appointed under the Code has broad remedial power to order reinstatement 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.
An employee may bring a complaint under the Employment Standards Act, 2000 if the employer has failed to comply with the requirements of that legislation – for example, where the employer has failed to reinstate an employee following a pregnancy/parental leave or engaged in an unlawful reprisal in contravention of the Act. In these types of situations, compensation awards for lost wages under the Employment Standards Act, 2000, may be greater than damage awards in wrongful dismissal cases.
Choosing the avenue to advance a claim can be tricky as the Employment Standards Act, 2000 does not permit an employee to double-up on a court action for wrongful dismissal and a statutory complaint under the Act.
The Occupational Health and Safety Act includes provisions that prohibit workplace harassment (as defined in the Act) and violence. Employers are required to have policies in place that deal with this subject. They are also required to take complaints seriously. This entails arranging a workplace investigation by a competent person. When an employer receives a workplace harassment complaint, it is usually best to commission an independent (third party) to carry out the investigation.
Finally, employers and employees should also be aware 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.
Careful attention should be paid to deadlines to bring an application under any of the above statutes as they differ.
- Some statutory applications under the Canada Labour Code must be brought within 90 days.
- Some applications under the Ontario Labour Relations Act, must be brought within 6 months.
- Under the Ontario Human Rights Code, the deadline for making an application is 1 year.
- Applications under the Employment Standards Act, 2000 are subject to a 2-year limitation.
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.