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Posts tagged: employment contract

Case Study: Why You Need to Periodically Review Your Employment Contract

By , October 11, 2017 9:08 am

A well-drafted employment contract is the best employment law investment an employer can make. It protects an employer from significant liability and will usually save thousands of dollars in termination costs.

An employment contract should be reviewed periodically because judges are refusing to enforce termination clauses if they are not drafted properly.

In a recent case, Covenoho v. Pendylum Ltd.,2017 ONCA 284, Ontario’s highest court concluded a termination clause was not legally enforceable because it might breach the Employment Standards Act (“ESA”) in the future.

The Facts

Joss Covenoho signed a one year fixed-term contract with Pendylum Inc. The employer terminated her agreement without advance notice when she had been employed for less that 3 months. The termination clause stated in part that the contract could be terminated before the end of the fixed-term “if the Pendylum Client to which you have been contracted terminate[s] its contract with Pendylum for your services”.

Decision by Motion Judge

The motion judge concluded that since the employee had been employed for less than three months, she was not entitled to any notice of termination. Under the ESA an employer is not required to provide any notice of employment to an employee during the first three months of employment.

Decision by Court of Appeal

The Court of Appeal reversed the motion judge’s decision and found that the termination provisions were void. It ruled that “the terms must be construed as if (the employee) had continued to be employed beyond three months; if a provision’s application potentially violates the ESA at any date after hiring, it is void”. In this case, if Ms. Covenoho had been terminated after three months of work, then the termination clause would have violated the ESA because she could have been terminated without any notice of termination (or any payment in lieu of notice) contrary to the ESA.  The court also ruled the employee was entitled to receive the salary that she would have earned for the balance of the fixed-term contract.

Lessons for employers:

1)   Employers should periodically review their termination clauses to ensure they are properly drafted and do not provide shorter notice than required by the ESA.

2)  As we have written about before, it is generally a bad idea to enter into a fixed term contract. If a fixed term contract must be used, it must include an enforceable early termination clause.

On October 16 and October 20 MacLeod Law Firm is holding seminars in Toronto and Barrie that will cover three topics. One topic is why employment contracts need to be reviewed periodically. Cases like this one is one reason but there are other reasons. Information on the seminar can be found here.

For over 25 years, Doug MacLeod of the MacLeod Law Firm has been advising employers on all aspects of the employment relationship. If you have any questions, you can contact him directly at 416 317-9894 or at [email protected]

The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.

 

Negligent misrepresentation during recruitment process costs employer $83,000

By , October 10, 2017 4:53 pm

Providing misleading information to an employee during the recruitment process about the eligibility for an employee benefits program cost an employer $83,000

Feldstein v 364 Northern Development Corporation

Mr. Feldstein applied for a software engineer position with 364 Northern Development Corporation (“the Company”). Before accepting the position, Mr. Feldstein asked the Company’s Chief Information Officer (“CIO”) about the eligibility requirements for the Company’s long-term disability (“LTD”) plan. As Mr. Feldstein suffered from cystic fibrosis, this information was very important to him, as he believed that he would require substantial LTD benefits in the future.

The CIO provided Mr. Feldstein with a brochure which summarised the Company’s LTD benefits, which contained a “proof of good health” clause. When Mr. Feldstein asked what this clause meant, the CIO explained that he would qualify for LTD benefits after working for the Company for three months. Based on this information, Mr. Feldstein accepted the position and signed an employment contract.

The employment contract in question contained the following “entire agreement” clause:

“This Agreement constitutes the entire agreement between the parties and supersedes all prior communications, representations, understandings and agreements whether verbal or written between the parties with respect to the subject-matter hereof.”

The purpose of an entire agreement clause is to prevent parties who have entered into a final contract from invoking prior discussions or understandings to give a different meaning to its provisions.

However, the contract did not contain any details of the benefits plan. Instead, the clause in the contract stated:

“The Employee shall be entitled to participate in all rights and benefits under any life insurance, disability, medical, dental, health and accident plans maintained by the company for its employees generally. In addition, the Employee shall be entitled to participate in all rights and benefits under other employee plan or plans as may be implemented by the Company during the term of this Agreement.

Shortly after accepting the position, Mr. Feldstein applied for LTD benefits as his health deteriorated significantly. He expected to receive full coverage of up to $5000 per month. Instead, Mr. Feldstein was only eligible for $1000 per month because he had not completed a medical questionnaire which was required to establish “proof of good health.” Mr. feldstein sued the Company for negligent misrepresentation.

Decision

The trial judge made the following findings:

  • the CIO’s explanation of “proof of good health” was inaccurate and misleading;
  • the Company was negligent in making this representation as the CIO had not taken any steps to verify the accuracy of the information he provided and the Company failed to provide Mr. Feldstein with the required medical questionnaire
  • it was reasonable for Mr. Feldstein to rely on the information the CIO provided; and
  • Mr. Feldstein would not have accepted an employment offer that did not provide adequate LTD coverage and acceptable eligibility requirements due to his health concerns.

The Company attempted to argue that the entire agreement clause in the employment contract meant that Mr. Feldstein could not sue for negligent misrepresentation. The court rejected this argument, as the CIO’s statement relating to the meaning of “proof of good health” was not an express term of the contract. As it was a matter outside of the contract, the clause could not exclude liability for pre-contractual misrepresentation.

Mr. Feldstein was awarded $83,336.80 as compensation for lost LTD benefits and $10,000 for aggravated damages. On appeal, the award for loss of benefits was upheld, but the aggravated damages were overturned.

Lessons to be learned

  1. Anyone interviewing a job applicant should provide accurate information concerning employee benefits; otherwise, the organisation may be required to self-insure for the value of benefits that are subsequently denied by the group insurer.
  2. Including an entire agreement clause in a contract like the one cited above does not always protect an employer from negligent misrepresentations made during the hiring process.
  3. It is important to periodically review employment contracts including entire agreement clauses and clauses dealing with group benefits to ensure they still protect employer interests in light of recent developments in the law.

The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.

Everything You Need to Know About Ontario’s Employment Laws

By , September 26, 2017 9:35 am

Now that I have your attention, let me outline three things you need to know.

  1. The Ministry of Labour is devoting considerably more resources to enforcing the Employment Standards Act (the “ESA”) and your organization is more likely to be inspected.

Earlier this year, the government announced it was hiring an additional 175 enforcement officers. In addition, I expect amendments to the ESA will be passed this fall by way of Bill 148 which will impose several new obligations on employers.

If your organization is inspected you will be asked, among other things, if you have: posted certain required written policies; provided employees with required training & documentation; posted certain required information in a conspicuous place; and, complied with the new obligations imposed by Bill 148. If not, then the inspector will issue orders and you must comply with these orders. If not, your organization will be subject to significant fines.

Are you ready for an inspection?

  1. About 50% of the complaints that are filed with the Ontario Human Rights Tribunal deal with disability related discrimination. In many cases, an employee claims the employer has failed to accommodate a disability. So chances are you will receive a request for accommodation at some point in time.

Responding to a request for accommodation can be extremely complicated. Failing to do so can be extremely costly.

Did you know that there is a procedural duty to accommodate and a substantive duty to accommodate?

Did you know that in some cases you have a duty to ask an employee if they have a disability?

Did you know that in some cases you have a duty to offer another position to a disabled employee?

Do you know whether or not you can require an employee seeking accommodation to see a doctor of your choosing?

Did you know that some employers are required to prepare a written individual accommodation plan for a disabled employee?

Do you feel comfortable responding to a request for accommodation?

  1. A well drafted employment contract is, in my opinion, the best employment law investment you will ever make. For various reasons it needs to be reviewed periodically.

In an era when the government is taking away management rights, did you know that an employment contract can add to your management rights?

In an era when courts are refusing to enforce termination clauses (and other clauses)  in employment contracts, did you know that you need to periodically review your contract to make sure it doesn’t need to be amended?

When the government imposes new obligations on employers such as the ones that are contained in Bill 148, did you know that you need to review your employment contract to make sure it complies with the ESA? For example, if your contract states that an employee receives two weeks vacation each year then this clause will need to be changed if one section in Bill 148 becomes law this fall.

The MacLeod Law Firm is not in the seminar business. I believe these topics are so important, however, that I am holding a seminar in Toronto on October 16th and in Barrie On October 20th to discuss them.

For more information about the seminar, click here.

For over 25 years, Doug MacLeod of the MacLeod Law Firm has been advising employers on all aspects of the employment relationship. If you have any questions, you can contact him directly at 416 317-9894 or at [email protected]

The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.

 

Probationary Clause Gets Employer Into Hot Water

By , February 14, 2017 8:57 am

Including a probationary period clause in an employment contract is not a good idea unless your organization is prepared to assess the suitability of the employee during the probationary period.

Failure to do so can result in your organization being ordered to provide a probationary employee with common law reasonable notice of termination.

This blog discusses one such case.

Probationary Employee Awarded Three Months Termination Pay

The Contractual Language

In Ly v. British Columbia (Interior Health Authority), 2017 BCSC 42, an employee signed back an offer of employment which included the following sentence: “Employees are required to serve an initial probationary period of six (6) months for new positions.”

The contract was silent on the employee’s rights and the employer’s obligations with respect to terminating the employee’s employment during the probationary period.

What does the term Probation Mean?

The judge in this case stated: “The term “probation” is well understood in business and industry as one where an employee is being assessed by the employer to ascertain the suitability of the employee as a permanent employee: …”

What does Assessing Suitability Require?

The judge stated: “An employer needs only to establish that it acted in good faith in its assessment of the probationary employee’s suitability: …

In determining whether an employer acted in good faith, courts have examined the process through which the employer determines whether the employee is suitable for permanent employment.  While an employer is not required to give reasons for the dismissal of a probationary employee, that employer’s conduct in assessing the employee is reviewed by the court in light of various factors such as:

1) whether the probationary 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 suitability for the position; and

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

 

How Much Notice of Termination Was the Probationary Employee Entitled to Receive?

Because the judge found that the employer had not made a good faith assessment of the employee’s suitability the judge concluded the employee was entitled to reasonable notice of termination using the Bardal factors: Having considered the length of Mr. Ly’s employment, including the probationary term of his employment, along with his age, the character of his employment, the availability of his employment, and his experience, training and qualifications, I am of the view that a three-month notice period is reasonable in this case.”

Lessons to Be Learned

  1. Think long and hard about whether you need a probationary clause in an employment contract.
  2. If the reason for this clause is to terminate a probationary employee with as little notice of termination as legally required then this objective can be accomplished with a properly worded termination clause.
  3. If you want to include a probationary period in an employment contract then make sure your organization makes a good faith effort to assess the employee’s suitability. This requires management time including answering suitability questions from the probationary employee.

For over 25 years, Doug MacLeod of the MacLeod Law Firm has been advising employers on all aspects of the employment relationship. If you have any questions, you can contact him at 416 317-9894 or at [email protected]

“The material and information provided on this blog and this website are for general information only and should not, in any respect, be relied on as legal advice or opinion. The authors make no claims, promises or guarantees about the accuracy, completeness, or adequacy of any information linked or referred to or contained herein. No person should act or refrain from acting in reliance on any information found on this website or blog, without first retaining counsel and obtaining appropriate professional advice from a lawyer duly licensed to practice law in the relevant jurisdiction. These materials do not constitute legal advice and do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.”

Incentive Compensation Plans: Court Considers Evidence of the Parties’ Conduct After a Contract is Signed to Assist in Contractual Interpretation

By , January 31, 2017 9:01 am

From time to time, employers change their incentive compensation plans for some of their employees – especially sales and marketing personnel. It may be the result of a change in market conditions. It may be in response to the organization’s growth rate or as a result of a reorganization. And sometimes these written agreements are not particularly well drafted. These poorly drafted agreements can and do result in litigation.

The Case

Shewchuk v. Blackmont Capital Inc., 2016 ONCA 912 

The Contractual Language

The Ontario Court of Appeal (“OCA”) was asked to interpret the following contractual language:

With respect to the broker warrants attributable to you for the transactions listed in Schedule “A” … and for all transactions … that are sourced directly by you … Blackmont shall pay to you an additional 10% over and above that which is payable under (another agreement) (the “Finder’s Fee”).

Schedule A to the agreement listed a number of qualified options and non-qualified options that were eligible for the Finder’s Fee as were new positions garnered. These new positions were added to Schedule A as they arose. The qualified options listed in Schedule A related to Retail Group transactions.

The Issue

The central issue at trial was whether this agreement applied to Capital Markets transactions which were not explicitly referenced in the agreement.

The Findings

The judge concluded that the above-noted contractual language was ambiguous.

The trial judge looked at the factual matrix, or the surrounding circumstances, to determine the intentions of the parties at the time of formation of the contract. The factual matrix sheds light on the meaning of a contract’s written language by illuminating the facts known to the parties at the date of contracting.

The trial judge also considered events occurring after the execution of the agreement. The trial judge found that this course of conduct supported the inference that the agreement was not intended to apply to transactions involving Capital Markets.

The Admissibility of Conduct that takes Place After a Contract is Signed

The OCA noted there are a number of dangers associated with admitting evidence of the parties’ subsequent conduct. One danger is that the over-reliance on subsequent conduct may reward self-serving conduct whereby a party deliberately conducts itself in a way that would lend support to its preferred interpretation of the contract.

Despite these dangers, the OCA concluded that “evidence of the parties’ subsequent conduct is admissible to assist in contractual interpretation only if a court concludes, after considering the contract’s written text and its factual matrix, that the contract is ambiguous. The court may then make retrospectant use of the evidence, giving it appropriate weight having regard to the extent to which its inherent dangers are mitigated in the circumstances of the case at hand, to infer the parties’ intentions at the time of the contract’s execution.”

Lessons to be Learned

  1. Poorly drafted or ambiguous contractual language can lead to litigation.
  2. Sometimes parties to a contract intentionally negotiate ambiguous language. It is important to document discussions that take place when contractual language is being negotiated since courts will hear evidence of the factual matrix when determining the parties’ intentions.
  3. After signing a contract, it is extremely important to act consistently with your understanding of the contract and if possible, document subsequent conduct which reinforces your interpretation of the contract. This self-serving conduct could result in any ambiguity being decided in your favour.

For over 25 years, Doug MacLeod of the MacLeod Law Firm has been advising employers on all aspects of the employment relationship. If you have any questions, you can contact him at 416 317-9894 or at [email protected]

The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.

 

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