Newsletter:

Employment Contracts:
An Employer's perspective

There is no such thing as a standard employment contract that can be used for every employment relationship. Although an employer may decide for policy reasons to include certain terms of employment in every written contract, each employment contract should be drafted with a particular person in mind.

1. Length of contract - Do you intend to employ the person for a fixed period of time, or for an indefinite period of time? Do you want to have a probationary period?
2. Job duties - Do you want to hire the person for a specific position, or do you want the right to change the employee's duties as you see fit? Similarly, are you hiring the person to work at a specific location, or do you want the right to transfer the employee to other geographic locations? Do you have any objection to the employee being involved in other business interests outside of normal working hours?
3. Existing personnel policies - If you have an employee handbook or personnel manual, do you want the employee to agree to abide by these policies? Similarly, do you want the employee to be bound by new policies or changes to existing policies?
4. Compensation - Do you want to pay the employee a salary or an hourly wage? Do you want the person to be eligible for a bonus or profit sharing and, if so, do you want this payment to be totally within your discretion?
5. Hours of work - Is mandatory overtime a condition of employment? When do you start paying overtime? Do you want to have the right to reduce an employee's hours of work without notice? Do you want to have the right to temporarily lay off an employee?
6. Confidential information - Will the employee have access to sensitive confidential information and, if so, what kind of safeguards do you need to protect this information?
7. Competition - Is there a risk that the employee could leave your organization and become involved in a competing business? If so, do you need a non-competition clause to protect your interests? If the person does leave, is there a risk that the person could try to convince other employees to leave as well? If so, do you need a non-solicitation clause to minimize this risk?
8. Termination - Do you want to set out each parties rights and obligations on termination? If so, is the employee entitled to any notice of termination during any probationary period? If your organization does not have just cause to terminate, how much notice of termination (or pay instead of notice) is the employee entitled to receive? What if your organization has just cause to terminate the employee?
9. Entire agreement - Do you want the written employment contract to constitute the entire agreement between you and the employee?

Employment Contracts:
An Employee's perspective

If you have been asked to sign an employment contract before starting a new job, make sure you understand all of the terms of the contract because this contract often is drafted to benefit your new employer. These contracts are usually drafted to take away certain rights - like the right not to be constructively dismissed, and the common law right to receive reasonable notice of termination.

Constructive Dismissal - There is often a term in an employment contract (or an offer of employment) dealing with job duties. If this clause gives the employer the right to add, delete, or modify the job duties at any time with no notice, then the employee will likely have a difficult time convincing a court that the employee has been constructively dismissed if the employee is later asked to do a different job than the one you were hired to do.

Reduced termination pay - Usually, there is a term in the contract dealing with termination. Often the employer wants the employee to agree to a pre-determined amount of notice of termination such as the employee’s entitlement under the Employment Standards Act. If so, you should know that you are giving up your right to reasonable notice of termination in exchange for the minimum standard required by law and that the maximum notice of termination under the Employment Standards Act is only 8 weeks.

Let's say you leave the security of a long-term position for an exciting opportunity elsewhere. If things aren't working out during the first three months of employment, and you have agreed that you are only entitled to the notice provided for under the Employment Standards Act, then you can be terminated with no notice!

Independent Contractors:
An Employer's Perspective

"What do you mean he's filing a UI claim? He signed a contract which states that he is not an employee and that our organization would not be making UIC deductions from his earnings."

Believe it or not, some independent contractors (or consultants) tell UIC officials that they were employed even though they've signed a contract clearly stating they are not an employee and even though they are telling Revenue Canada they are self-employed on their income tax returns. And in some cases, the adjudicator hearing the claim will find that the individual was in fact employed.

For some functions, particularly those that are not integral to an organization's business, entering into an independent contractor arrangement can be a very good idea.

If structured properly, the benefits of an independent contractor arrangement can accrue to both the employer and the independent contractor.

The employer avoids the cost of expensive employee benefits and isn't required to pay various payroll taxes like UIC, CPP, workers' compensation, and the employer health tax. The employer also avoids having to deal with employee complaints filed with government agencies like the Ministry of Labour and the Human Rights Commission. On the other hand, the independent contractor doesn't have to pay into UIC, and can write off certain expenses related to the contract like a home office, and car expenses.

When deciding whether a true independent contractor relationship exists, the courts (and government agencies) look at the substance of the relationship to determine whether an independent contractor or an employment relationship exists. Often the following factors are considered when making this determination: control (ie. does the consultant work a specified number of hours each week); ownership of tools; chance of profit; and, risk of loss (ie. does the consultant pay for expenses related to the contract such as office expenses, telephone charges, gas costs etc.)

If the relationship is not structured carefully, this kind of arrangement can result in significant legal exposure to the employer if the individual (or a government agency) later says he was an employee.

Here are some situations where a consultant can take the position that he is an employee and what this means to the employer:

• The consultant is injured in a workplace accident, the Occupational Health & Safety Branch of the Ministry of Labour investigates the accident and charges your organization with a violation of the Occupational Health and Safety Act. If the consultant is found to be a worker and the violation is proved, the organization could be liable for a fine up to $ 500 000.
• The consultant's contract is terminated without notice and he files a complaint under the Employment Standards Act and/or sues for wrongful dismissal. If the consultant is found to be an employee, an Employment Standards Officer could order the employer to pay the consultant monetary damages including termination pay, accrued vacation pay, overtime pay, and/or severance pay. Similarly, a court could order the employer to pay the consultant compensation for failing to provide him with reasonable notice of termination.

Even though a person agrees in writing that he is an independent contractor, he can still later claim that he is in fact an employee and assert all of the rights of an employee. If the employer exerts a significant amount of control over the person, then a court or administrative tribunal can and have agreed with the individual. Therefore, if you are thinking about retaining an independent contractor speak with a lawyer about how you can structure the relationship to minimize your organization's legal exposure.

Independent Contractors:
A Contractor's Perspective

If you want to be paid as an independent contractor (or consultant) so you can claim certain expenses like a home office, car etc., you should carefully structure the arrangement and enter into a written contract to ensure that it can withstand scrutiny from Revenue Canada or the courts.

You should know, however, that organizations often propose this kind of arrangement because it saves the organization money by avoiding payroll taxes and expensive employee benefits, and because this arrangement denies you certain legal rights that you would have as an employee. For example, as an independent contractor you are not entitled to overtime pay, public holidays, or vacation pay under the Employment Standards Act; your earnings are not insurable earnings under the Employment Insurance Act; and, you have no rights under the Ontario Human Rights Code if you are discriminated against.

Until recently, if both parties wanted to create an independent contractor relationship there was not usually a problem. Now, however, Revenue Canada is looking into these kind of arrangements as part of its audit function and in some cases concluding that the independent contractor is in fact an employee even if the parties have agreed in writing that an independent contractor relationship exists. When deciding whether an independent contractor relationship exists, adjudicators look at all of the circumstances surrounding the relationship including the following factors: control; ownership of tools; chance of profit; and, risk of loss.

Employment Standards Act:
An Employer's Perspective

On September 4, 2001, the new Employment Standards Act (ìnew ESAî) was proclaimed into law. This article describes four changes to this legislation. Generally, each of these statutory requirements is deemed to be included in the terms and conditions of employment for every provincially regulated employee. The new ESA applies to about 90% of employees working in Ontario.

Hours of Work

Under the old ESA, an employee could not be scheduled to work more than 8 in a day or 48 in a week unless the employer obtained the employeeís consent and a permit from the Ministry of Labour. Under the new ESA, however, if an employee agrees, the employer can schedule an employee to work up to 60 hours per week. An employee who agrees to such an extended work week can revoke this agreement by providing the employer with two (2) weeks written notice to the employer.

Overtime pay

Under the new ESA as under the old ESA, an employee is entitled to receive overtime pay for all hours in excess of 44 in a week. In the past, however, an employer was not permitted to average hours over a period of more than one week for the purpose of calculating overtime pay unless the employer obtained the employeeís consent and a permit from the Ministry of Labour. Under the new ESA, an employeeís hours of work may be averaged over a period of up to 4 weeks for the purpose of calculating overtime pay, if the employee agrees.

Public Holiday Pay

Under the old ESA, many part-time employees were not entitled to receive public holiday pay. For example, an employee was not entitled to public holiday pay unless s/he worked at least 12 days during the 4 weeks immediately proceeding the public holidays. Under the new ESA, most part-time employees are entitled to public holiday pay which is now equal to the employeeís regular wages and vacation pay payable in the four week period prior to the week of the public holiday pay divided by 20.

Emergency Days (New)

Under the new ESA, an employee whose employer regularly employs 50 or more employees is entitled to up to 10 pays unpaid leave for personal illness, injury or medical emergency, or to deal with the personal illness, injury or medical emergency of certain relatives such as a parent, child, grandparent, sibling, or the relative of the employee who is dependant on the employee for care or assistance.

Every employer should review the standard terms and conditions of employment within the organization to ensure that they comply with the new ESA.

Employment Standards Act:
An Employee's Perspective

The Employment Standard Act sets out certain minimum terms of employment that are deemed to be part of most employment contracts. There are exemptions to many provisions of this Act so the following information may not apply to some employees.

Hours of work - An employee cannot work more than 8 hours in a day, or 48 in a week unless the employee consents.

Eating period - An employee is entitled to 30 minute eating periods at such intervals as will result in no employee working longer than five consecutive hours without an eating period.

Overtime pay - An employee is entitled to overtime pay at time and half the employees's regular rate for all hours in excess of 44 in a week unless the employee agrees otherwise.

Public Holidays - There are eight (8) paid employees under the Act. All employees including part-time employees, and relief employees are eligible to receive public holiday pay.

Pregnancy and Parental Leaves - Employees are entitled for an unpaid leave of up to 52 weeks.

Emergency leave - An employee whose employer regularly employs 50 or more employees is entitled to up to 10 days unpaid leave for certain purposes.

Termination pay - Unless an exception applies, an employee is generally entitled to up to 8 weeks to notice of termination.

Severance pay - Unless an exception applies, an employee who has been employed for five years or more is generally entitled to up to 26 weeks severance pay if the employer has a payroll of $ 2.5 million or more.

Employee Termination:
An Employer's perspective

"Bob, I'm afraid that we're going to have to let you go."

These are perhaps the most difficult words a manager is required to utter. Especially, if you've worked side by side with the person for years, and the termination is for economic reasons only.

If your organization does not have just cause for a termination there are ways, however, to reduce the stress experienced by the manager and the terminated employee. These measures also often have the effect of reducing the organization's legal liability relative to the termination.

The best way to minimize your organization's legal liability is to ensure that the employee signs a written employment contract that contains a termination clause which sets out your organization's rights and obligations if the employee is terminated. If such a termination clause does not exist, then you usually must either negotiate a settlement package with the employee, or go to court.

If just cause is not an issue, then your organization will often be required to provide an employee with more notice of termination (or pay instead of notice) than the minimum standard set out in the applicable employment standards legislation. Any settlement offer made to the employee can, however, be structured so that the employee is motivated to quickly obtain alternative employment thereby minimizing the amount of this additional termination pay.

When presenting a settlement offer to an employee, many employers insist on stating that the offer is made even though there is just cause for termination. This statement is included because the organization wants to retain its right to argue just cause in court if the parties can't reach a settlement. The practical effect of this legal position is that the employee often gets angry and wants to fight the employer because the person's reputation is now at issue. If your evidence of just cause is very weak it is often better not to raise just cause allegations and focus instead on helping the employee find alternative employment. If you allege just cause where no cause exists, courts can and do increase the reasonable notice period.

Assuming your organization is not claiming there is just cause for termination, here are some things to consider when implementing a termination:

• Would you be comfortable telling the employee that he will be terminated on a specified date in the future? This is called working notice. If so, your organization will generally be required to pay the employee less termination pay. Some employees prefer to receive working notice because it allows the person to start a job search while still employed. And it is often easier to obtain a new job while still employed.
• What kind of reference are you prepared to provide the employee? This no cost measure acknowledges the person's performance and often helps the employee secure alternative employment. A reference is particularly helpful for long service employees because a prospective employer will usually want to know why the person left your organization. The courts can and do extend the reasonable notice period if a reference is unreasonably denied.
• Does it make sense to provide the employee with job relocation counselling? Although not appropriate in every case, this service can be extremely valuable.

Consult with a lawyer before terminating an employee, and consider requiring all new employees to sign a written employment contract that includes a termination clause. These measures can easily be incorporated into most termination strategies, and can significantly reduce the stress and legal liability associated with employee terminations.

Lay-Offs:
An Employee's Perspective

If you have been told not to return to work, generally you have been terminated and are entitled to compensation unless you have been guilty of wilful misconduct or disobedience or wilful neglect of duty.

For example, if you have been told not to return to work because you have been laid off (either a short-term lay off or a long-term lay off) then you are usually considered terminated and therefore entitled to notice of termination or termination pay instead of notice.

Similarly, if you have been told that there has been a reorganization, your position has been eliminated and you have been downsized then you are usually considered terminated and entitled to notice or pay instead of notice.

In most wrongful dismissal cases, there are usually two main issues to be decided.

The first issue is whether you were terminated for just cause. The employer must prove just cause and this is often difficult to do. A lay-off for economic reasons is not just cause for termination.

If the employer can prove just cause, you may still be entitled to up to 8 weeks termination pay, and up to an additional 26 weeks severance pay under the Employment Standards Act.

If the employer cannot prove just cause, then the second issue is how much notice of termination are you entitled to receive. Unless you have agreed to a pre-determined amount of notice, you are usually entitled to reasonable notice of termination of up to 24 months which depends on all of the circumstances including your age, salary, position and length of service.