What are the Termination Requirements for Construction Workers in Ontario Again?

As it currently stands, non-unionized construction workers are not entitled to notice of termination, termination pay, or severance pay pursuant to the O.Reg.288/01 of the Employment Standards Act, 2000. A construction employee is defined as follows by the ESA:

“construction employee” means,

(a) an employee employed at the site in any of the activities described in the definition of “construction industry”, or

(b) an employee who is engaged in off-site work, in whole or in part, but is commonly associated in work or collective bargaining with an employee described in clause (a).

Despite this clear language within the legislative exemption, a recent decision of the Divisional Court has decided that a construction employer is required to provide reasonable notice of when the termination clause in the employment contract is unenforceable (Rutledge v. Canaan Construction Inc., 2020 ONSC 4246).

The employee was laid off for “shortage of work/or end of contract or season” by the employer. The employee was not recalled to work and subsequently found alternative employment.

Shortly afterwards, the employee commenced an action in the Small Claims Court seeking damages for wrongful dismissal. Canaan Construction Inc., defended the claim by arguing that the construction employee was not entitled to notice or termination pay pursuant to the ESA, and that their contract confirmed this exemption.

The employee argued that the termination clause was invalid as it contracted out of the ESA minimums. The clause was written as follows:

The Employee may be terminated at any time without cause upon being given the minimum periods of notice as set out in the Employment Standards Act, or by being paid salary in lieu of such notice or as may otherwise be required by applicable legislation. The Employee acknowledges that pursuant to the Employment Standards Act they are not entitled to any notice or time in lieu thereof due to the nature of their job and as such they are entitled to absolutely no notice or pay and benefits in lieu thereof upon termination.

 

The termination provisions set force above, represent all severance pay entitlement, notice of termination or termination in lieu thereof, salary, bonuses, vacation pay and other remuneration and benefits payable or otherwise provided to the Employee in relation to the termination of the Employee regardless of cause or circumstances.

 

Despite acknowledging that construction employees are not entitled to notice or termination pay under the ESA, the Divisional Court determined that the termination clause was invalid as it could disentitle the employee:

  1. should the employee move to a non-exempted position in the future, or
  1. if the employer’s business grew to the point where it met the 2.5 million payroll or 50 or more employees severance pay threshold.

As a result, the Divisional Court upheld the Small Claim Court decision to award reasonable notice of termination to the construction employee.

This decision is problematic for two reasons:

  1. the Divisional Court’s assumption that the employee may eventually move to a non-construction position is akin to predicting the future. While the Covenoho v. Pendylum Ltd. 2017 ONCA 284 decision referred to in this case concludes that a termination clause must be valid throughout the employment of the employee, it does not stand to reason that an employer should be omniscient and take into account a future promotion which may never even be contemplated; and
  1. the Divisional Court’s finding that the employee could eventually be entitled to severance pay is inconsistent with O.Reg. 288/01 9(1) of the ESA which specifically excludes construction employees from the entitlement to severance pay.

There may have been an additional argument available to this employer based on the Ontario Court of Appeal decision Scapillati v. Potvin Construction [1999] O.J. No. 2187.  The Court of Appeal determined that construction employees are not entitled to reasonable notice in the circumstance where there is a custom or practice of the trade to not provide reasonable notice.  It is unfortunate that the case was not considered by the judge or argued by the parties.

While arguably there is no entitlement to notice, termination pay or severance pay pursuant to the ESA, or to reasonable notice at common law for terminated construction employees as defined by the ESA, employers can attempt to limit the risk outlined in this case with a properly drafted termination clause in an employment contract.  If you have questions regarding this case and how it may impact on your operations, please contact me.

The material presented in this blog is to present general information on the subject matter and should not be regarded or relied upon as legal advice or opinion.

Managing Employees in the Age of COVID-19

Sweeping Changes to the Canada Labour Code Harassment and Violence in the Workplace Regulations

On June 24, 2020, the Minister of Labour announced the new Workplace Harassment and Violence Prevention Regulations that will come into force on January 1, 2021. The regulations will amend the Canada Labour Code, and will replace Part XX of the Canada Occupational Health and Safety Regulations. The following are some highlights of the legislation:

Assessment of Violence and Harassment in the Workplace

  • Employers must conduct a workplace assessment, in conjunction with a workplace health and safety committee or representative, to identify risk factors and develop preventative measures in relation to harassment and workplace violence. This includes an evaluation of workplace culture, physical design of the workplace and external factors that could give rise to workplace violence or harassment, and the implementation of preventative measures.

Development of Workplace Harassment and Violence Prevention Policy

  • The employer and the joint health and safety committee are required to develop a workplace harassment and violence policy with specific elements such as the respective roles of the employer, employees, and workplace health and safety representatives. They will also need to create a summary of training to be provided to all employees, a comprehensive resolution process and description of support measures that are available to employees.

Resolution Process (Notice of Occurrence)

  • In order to file a complaint or to report an “occurrence” (which is defined as any incident of workplace harassment or violence in the workplace), an employee is required to provide a notice of occurrence to the employer or the designated recipient in writing or orally.
  • Where a person provides a notice of an occurrence, an employer is required to respond within 7 days. The employer will then be required to inform the responding party and make “every reasonable effort to resolve an occurrence”, within 45 days.  The parties may attempt to resolve the matter through conciliation.

Investigation Process

  • If the matter is not resolved, it must be investigated if the “principal party” (person who is object of occurrence) requests it. An investigator must be selected from a pre-developed and jointly approved list, or by agreement of the parties involved. If an investigator is not agreed upon, the employer must select an investigator listed by the Canadian Centre for Occupational Health and Safety, as having training, knowledge and experience relevant to workplace harassment and violence.
  • An investigation report must be provided to the principal party, responding party and workplace committee or health and safety representative.

While the legislation is quite extensive, federally regulated employers have until January 1, 2021 to ensure that they are in compliance with its requirements.  We would be pleased to review your current policies and practices to ensure full compliance with these new Regulations. If you have any questions, please do not hesitate to contact us.

New Canada Labour Code Changes to Internship Rules

Changes to the Canada Labour Code, R.S.C., 1985 took effect on September 1, 2020 and will be passed through the Standards for Work-Integrated Learning Activities Regulations. These regulations have been passed in order to offer additional protections for interns and student interns working for federally regulated industries or workplaces.

An intern does not have to be part of a formal education program. An intern may be a recent graduate, an individual pursuing a mid-career change or an individual returning to the workplace following an absence. Interns are entitled to the full labour standards protections under Part III of the Canada Labour Code. An intern is also entitled to be paid at least minimum wage.

Student interns, defined by students who are completing an internship to fulfill the requirements of a formal educational program, are unpaid.  However, other labour standards protections have now been extended to student interns as of September 1, 2020. In particular,

  • Standard hours of work and breaks: Student interns are now covered under the standard hours of work provision in the Code, including a variety of rights such as, standard hours of work, general holidays in a week, rest periods, maximum hours of work, scheduling hours of work, notice of schedule, and the right to refuse work that they do not have at least 96 hours of notice for.  
  • Breaks for Medical Reasons or Nursing: Student interns now have the ability to enforce rights to have breaks for medical reasons; they will still be required to provide a medical certificate by a health care practitioner. In addition, they will also be able to take unpaid nursing breaks where necessary in order to nurse or express breast milk.
  • Holidays: Student interns are eligible for general holidays as prescribed by the This allows them to take statutory holidays, and also will allow them to have the following day off where a statutory holiday falls on a weekend. Employers will still be able to substitute statutory holidays for other days off in respect to student interns
  • Protected Leaves of absence and maternity-related reassignment: If a student intern is pregnant or nursing, a student intern is entitled to request a modification to duties upon delivery of a medical certificate stating that the current duties caused a risk to the student intern or child. An employer must modify the position or provide a written explanation as to why a modification is not reasonably practicable. If modification of the duties is not possible, a student intern may not be entitled to a leave of absence. Other leaves have also been extended to students, including personal leave, bereavement leave and medical leave, along with corresponding prohibitions against any reprisal for exercising rights under Part III of the Code.
  • Work-Related Illness and Injury and Sexual Harassment: Student interns are protected with respect to injuries they experience at work, reassignment to a different position still applies where the student returns and is unable to perform the work they used to perform before their absence. Many of the Code provisions are related to reprisals and sexual harassment.
  • Record Keeping Requirements: There will also be new record keeping requirements for employers after engaging a student intern. Employers will need to keep the information for a period of at least 36 months after the student internship ends. The record keeping requirements are quite comprehensive and should be viewed in advance of hiring.

A summary of the changes can be found at the following link:

https://www.canada.ca/en/services/jobs/workplace/federal-labour-standards/employer-obligations-interns.html

Employer Considerations for Employees Working from Home

As a result of COVID-19, employers are increasingly offering employees the opportunity to work from home. As many employers have recognized, at-home work is likely a necessity given the realities of COVID-19.  Even after the pandemic has passed, it is likely that Canadian workplaces are forever changed as a result. As such, we have outlined some key considerations for employers in respect of employees working from home.

Contractual and Policy Considerations

Every employee should be working under the terms and conditions of a written employment agreement.  Most employment contracts contain a provision that allow the parties to mutually agree to modify the terms and conditions of employment (most require that these changes be in writing). To the extent that an employee’s hours of work or working conditions are being modified signifantly, it is advisable to obtain written consent from the employee to the new arrangement. In the absence of such agreement, and if such an arrangement were imposed on a worker, an allegation of constructive dismissal could be made.

A separate “work-from-home agreement” is also recommended. A work-from-home agreement is useful to clearly outline the respective obligations and responsibilities of both the employer and employee, including working conditions (home office, safe workplace), required hours of work, limitations on overtime, tracking hours of work, and technological considerations such as logging into the employer’s system and IT security concerns.  An employee is required to devote their full-time and attention to work even if working from home. It will be important to develop clear reporting and performance management systems.

Finally, an employer should develop and implement work-from-home policies and procedures for all employees.  With the prevalence of working from home increasing because of the pandemic, employers should implement work-from-home policies to ensure the consistent application of practices and procedures for employees who are working from home.

Statutory Considerations

Employment Standards: employees working from home are entitled to minimum statutory entitlements, such as minimum wage, overtime pay, vacation pay and entitlement to various forms of leave, including Infectious Disease Emergency Leave. Under the Ontario Employment Standards Act, 2000, a “homeworker” defined as an individual performing work from their own homes, is entitled to a higher minimum wage ($15.40 per hour) than the general minimum wage ($14 per hour). The employer is ultimately responsible for implementing procedures to control hours of work and ensure that there are proper reporting procedures in place to ensure compliance with minimum employment standards.  This may include regular reporting requirements, logging in and out procedures, and specific written approval as a requirement in advance of any overtime work.

Occupational Health and Safety: Under the Ontario Occupational Health and Safety Act, an employer is required to take every precaution reasonable in the circumstances for the protection of a worker. At the same time, the law is unsettled as to the application of the Occupational Health and Safety Act to telework. Section 3(1) of the OHSA provides that the Act does not apply to work performed “in or about a private residence, or the lands and appurtenances used in connection therewith.” However, the Ontario Labour Relations Board has permitted a reprisal application to proceed in respect of home work (although section 3(1) was not discussed in the decision).  Additionally, the Supreme Court of Canada has also recently upheld an adjudicator’s ruling that the employer’s workplace inspection obligations under the Canada Labour Code do not apply to workplaces over which the employer has no control.  In that case, the Court held that Canada Post did not have control over letter carrier routes and delivery locations, and therefore, could not be expected to inspect those locations to assess hazards.

Workplace Safety and Insurance: Under the Ontario Workplace Safety and Insurance Act, workers who are injured “in the course of employment” even if it is while working at home, may be entitled to benefits under the Act. An employer and employee have the same rights and responsibilities whether an employee is working at home or at an employer’s workplace. Of course, if an employee is injured while working from home, there will be questions as to whether or not the injury or illness was actually work-related.  An employer should take reasonable steps to ensure employees are aware of timely reporting obligations if there is an accident. Employers may also want take the opportunity in a “work from home” agreement to specify WSIA reporting obligations and place an onus on the employee to ensure that there is a dedicated, safe work space when the employee is working from home.

Human Rights:  The duty of accommodation as required by human rights legislation applies to employees working from home.  The most common issue that has arisen due to the pandemic is childcare obligations because of school and daycare closures.  Discrimination on the basis of “family status” (which includes childcare obligations) is prohibited by human rights legislation throughout Canada. Employers are required to accommodate an employee’s child care requirements (not preferences) to the point of undue hardship. This may require offering at-home work to an employee with no options available for childcare. It may require consideration of alternative hours of work. At the same time, an employee has an obligation to cooperate in the accommodation process and has to make reasonable efforts to explore childcare alternatives to ensure that he or she can work. With the opening of schools and daycares in Ontario, there are many options available to parents that must be explored. The pandemic is ever evolving and if there is another shut down, employers may need to consider offering at-home work as an option.  In some cases, at-home work is not possible given the nature of the work or position.

Conclusion

The pandemic has likely changed workplaces forever. The line between an employee’s home and workplace has been blurred. This causes productivity, privacy and confidentiality concerns for both the employee and employer. Employers lose a measure of control over the working environment and for this reason, it is critical for employers to implement “work from home” policies, procedures and agreements to ensure a clear understanding of responsibilities, obligations and duties when working from home.

Superior Court says Layoff permissible based on Verbal Agreement, not Constructive Dismissal

There is a line of authority that says an employer cannot lay off an employee without a clear contractual right to do so (express or implied) and that in the absence of that contractual right, the imposition of a layoff (including a temporary layoff as permissible under the Ontario Employment Standards Act, 2000) constitutes constructive dismissal.

In Hefkey v. Blanchfield Roofing Co., the Superior Court had to decide whether or not the employee could be laid off based on a verbal agreement.  The employee commenced employment with Blanchfield Roofing Co. in 2003, left in April 2009 for a period of time for another job, and then returned four months later. He worked continuously for the company until December 2015, when he was laid off from his position; which was the first time that he had been laid off during the course of his employment. He was recalled to work 3 months later, and was advised that he would have to sign a new employment contract. He did not previously have a written employment agreement as all agreements between the parties were verbal.  The employee refused to sign the written contract and claimed that the employer was not entitled to lay him off and claimed constructive dismissal. He also argued that the employer had the onus of proving that there was an express or implied term in the contract that permitted layoffs.

The employer argued that there was an express verbal agreement with the employee that the conditions of his employment had always included the possibility of a layoff during the winter months if there was no work available. Ultimately, the Court accepted the employer’s position and concluded that there was an express verbal agreement that permitted layoffs during the winter months. While he had not been laid off during his employment, this was because he was married to the owner’s sister and did not diminish from the express verbal agreement that permitted layoffs. As such, there was no constructive dismissal.

In rendering this conclusion, the Court followed the decision in Jamshidi v. Dependable Mechanical Systems and determined that the employee had the onus of establishing that the contract prohibited layoffs.

In this case, the employee failed to meet that onus and it was concluded that the employer had the right to lay off the employee.  While the Court ruled with the employer on the issue of a permissible layoff, it also concluded that the terms of the written employment agreement being proposed were substantially different than his previous terms, including changes to remuneration, job title, and entitlements upon termination.  According to the Court, it was “vastly different” than his existing terms and conditions, which supported a constructive dismissal claim.  Notably, the Court found that there was a break in service when the employee left for a few months for another job, and therefore, his length of service was 6 years, rather than 12 years.  He was awarded 7 months of reasonable notice.

For employers, the Court reaffirms the validity of a verbal agreement which permitted layoffs.  At the same time, the Court placed the onus on the employee to prove that such a layoff was expressly prohibited. A best practice for employers is to include an express right to layoff an employee in a written agreement in certain circumstances, which is consistent with the temporary layoff provisions as outlined in the Ontario Employment Standards Act, 2000.

 

Supreme Court of Canada allows Uber Driver Class Action for Minimum Wage

On June 26, 2020, the Supreme Court of Canada rendered a landmark decision which has opened up the door for an enormous class action lawsuit by Uber drivers for minimum wage.

To become an Uber driver, individuals were required accept a standard services agreement which provided that they were independent contractors and that any dispute was to be resolved by arbitration in the Netherlands.  David Heller commenced a class action lawsuit to for alleged violations of the Ontario Employment Standards Act, 2000.

In November 2018, Ontario’s Court of Appeal ruled that Uber’s clause amounted to an attempt to contract out of the Employment Standards Act, 2000, because it required the resolution of any dispute by mediation or arbitration in the Netherlands, which deprived the individual of the right to pursue a complaint to the Ministry of Labour for matters such as vacation pay or unpaid wages. The clause also required an upfront administrative fee of $14,500 USD, just to participate in the arbitration, which the Court considered to be unconscionable, given the inequality of bargaining power between the parties and the improvident cost of arbitration.  The Ontario Court of Appeal ruled that the class action could proceed in Ontario because of the unfair arbitration clause.

In rendering this decision, the Supreme Court has modified and arguably watered down the test for unconscionability. The last major decision in Ontario from the Court of Appeal in Phoenix Interactive Design Inc. v. Alterinvest II Fund LP described the test as follows:

  1. A grossly unfair and improvident transaction;
  2. A victim’s lack of independent legal advice or other suitable advice;
  3. An overwhelming imbalance in bargaining power caused by the victim’s ignorance of business, illiteracy, ignorance of the language, blindness, deafness, illness, senility, or similar disability; and
  4. The other party’s knowingly taking advantage of this vulnerability.

The Supreme Court specifically rejected this test after Uber tried to advance it. In doing so, the Court decided that there was no requirement to “knowingly” take advantage of the other person’s vulnerability in order to meet the threshold. The Court stated that there were two elements necessary in order to find unconscionability: (1) an inequality of bargaining power and (2) whether there is a resulting improvident provision.

The Supreme Court determined that there was inequality of bargaining power between Uber and the driver because the clause was part of a standard form contract, there was a significant gap in terms of sophistication between the parties, and the driver could not be expected to appreciate the financial and legal implications of the clause. The Court determined it was improvident because in order to get to arbitration, it required $14,500 USD in administrative fees.

For employers, there are a couple of takeaways. The decision is limited to a determination that the class action can proceed forward in the Ontario Courts because the arbitration clause is not valid. There were no findings in respect of whether or not the driver was an employee or an independent contractor, which is a threshold requirement to make a claim under the Ontario Employment Standards Act, 2000. Moreover, the Supreme Court does not prohibit arbitration clauses in employment agreements, although the decision means that employers must be very careful when including an arbitration clause. Arbitration clauses can be an effective, timely and cost effective means of resolving employment disputes, but it is important that the provisions are balanced and do not take away an employee’s right to advance claims under the Ontario Employment Standards Act, 2000.

COVID-19: A Summary of Legislated Changes Related to the Emergency

COVID-19 has resulted in a flurry of changes to legislation throughout Ontario and Canada. In order to stay on top of the changes, we have provided a summary of the changes to Ontario and the Federal legislation below:

Ontario

Ontario modified the Employment Standards Act, 2000 (“ESA”), by implementing the Emergency Leave: Declared Emergencies and Infectious Disease Emergencies. This resulted in amendments to section 50.1 of the ESA pertaining to emergency leave. Generally speaking, an employee that requires leave as a result of the prescribed circumstances as outlined below are entitled to a job protected, unpaid leave of absence during the period of the emergency declaration, which has most recently been extended to July 15, 2020. This will almost certainly be extended. On Tuesday July 7, 2020, the government introduced new legislation, Bill 195, which would give it the power to extend the emergency declaration for additional periods of thirty (30) days. If the Bill is passed, the Ontario Government will also have the power to keep extending the thirty (30) day period for one (1) year.

An employee is entitled to take a COVID-19 leave if unable to perform the duties of his or her position because the employee is:

  • under medical investigation, supervision or treatment for COVID-19;
  • acting in accordance with an order under the Health Protection and Promotion Act;
  • in isolation or quarantine in accordance with public health information or direction;
  • directed by the employer not to work due to a concern that COVID-19 could be spread in the workplace;
  • needed to provide care to someone for a reason related to COVID-19 such as a school or child care closure; or
  • prevented from returning to Ontario because of travel restrictions.

An employee who takes COVID-19 leave is entitled to reinstatement to the same job he or she held before the leave commenced, or a comparable job if the job no longer exists. Despite this statutory obligation, an employer is entitled to terminate an employee if the termination is for reasons that are entirely unrelated to the fact that the employee was required to take the leave.

On May 29, 2020, the Ontario government passed Regulation 228/20 Infectious Disease Emergency Leave, which amended the ESA further. The Regulation provided, in part, relief for employers from termination and severance pay obligations where there has been a temporary reduction of hours or an elimination of an employee’s hours of work. The changes are retroactive to March 1, 2020 and continue during the declared emergency leave.  The Regulation specifically provides that reduction or elimination of hours of work due to the pandemic shall not constitute constructive dismissal. It remains to be seen whether a Court will interpret these legislative changes as protection against allegations of constructive dismissal under the common law.  It is notable that these legislative changes do not apply to unionized employees.

 

 

Federal

Canada Labour Code

On March 25, 2020, the Federal government passed Bill C-13, COVID-19 Emergency Response Act, containing various measures designed to deal with the pandemic. It included a change to 239.01 of the Canada Labour Code and provided for an unpaid leave of up to sixteen (16) weeks for employees who could not work, or were not available to work because of reasons related to COVID-19. The leave came into force on March 25, 2020.

The leave requires that an employee give written notice to the employer as soon as possible with respect to the reasons for the leave and the intended length. Employers are able to require a written declaration in support of the leave.

Employers are not permitted to dismiss, suspend, lay-off, demote or discipline an employee because they take the leave. Benefits are required to be continued during the period of leave, and vacation was able to be interrupted in order to take COVID-19 Leave. In addition, parental leave was also able to be interrupted as a result of COVID-19 leave.

Canada Emergency Response Benefit (“CERB”)

As part of Bill C-13, the government also introduced the Canada Emergency Response Benefit Act. This allowed employees and any workers who had made at least $5000.00 in the previous year, to qualify for a monthly payment of $2,000.00. In order to qualify, the worker must have stopped working for reasons related to COVID-19 for at least 14 consecutive days within a four-week period for which they were to receive payment, and not received income whether from employment, self-employment, employment insurance, or allowances under a provincial plan because of pregnancy. Any employee who quit their employment voluntarily is not eligible for CERB.

Due to unintended consequences of workers failing to return to work after businesses were permitted to re-open, the Federal Government has introduced new legislation (Bill C-17) that will amend the Canada Emergency Response Benefit Act and will place some reasonable limitations on the entitlement to this benefit which may encourage workers to return to the workplace.  In particular, a worker will not eligible for an income support payment if they

  1. fail to return to work when it is reasonable to do so and the employer makes a request for their return;
  2. fail to resume self-employment when it is reasonable to do so; or
  3. decline a reasonable job offer when they are able to work.

The legislation has not yet been passed. These changes will be  welcomed by employers given that the economy is starting to re-open and the Federal Government has just announced that it will extend CERB to August 29, 2020.

We will continue to keep you updated as to any important legislative changes. If you have any additional questions with respect to any of the legislative changes that have been made in response to the pandemic, please contact us.

Ontario Court of Appeal Terminates another Termination Clause

The Ontario Court of Appeal has ruled that another termination clause in an employment contract is unenforceable.  In Waksdale v. Swegon North America Inc., the Court was asked to determine the legal impact of an illegal termination for cause provision on an otherwise enforceable termination without cause provision. The Employer admitted that the “with cause” termination provision was unenforceable, but argued that the provision had no bearing on the case since it was a termination without cause.

The case does not provide any information as to the specific reasons why the for cause provision was unlawful, but it could be that the provision failed to address the concept of “willful misconduct” which is necessary under the Ontario Employment Standards Act, 2000 (“ESA), to avoid statutory termination pay and severance pay, which represents a higher standard than just cause under the common law.

The motion judge dismissed a motion for summary judgment by the employee on the basis that the termination without cause provision in the employment agreement was a standalone, unambiguous, and enforceable clause, which provided as follows:

You agree that in the event that your employment is terminated without cause, you shall receive one week notice or pay in lieu of such notice in addition to the minimum notice or pay in lieu of such notice and statutory severance pay as may be required under the Employment Standards Act 2000 as amended. All reimbursement for business expenses shall cease as of the date of termination of your employment, however, you shall be reimbursed for legitimate business expenses that have been incurred and submitted to the Company but not as yet paid you to that date. The terms of this section shall continue to apply notwithstanding any changes hereafter to the terms of your employment, including, but not limited to, your job title, duties and responsibilities, reporting structure, responsibilities, compensation or benefits.

There was no dispute that the Employer complied with the ESA and the above termination without cause provision by providing the employee with 2 weeks’ pay in lieu of notice. He had been employed for less than a year.   The difficulty for this Employer was that the termination for cause provision was illegal.  The Court was asked to consider whether the illegality of the termination for cause provision invalidated the termination without cause provision.

The Employer argued that where there are two discrete termination provisions that apply to two different situations and that in this case, the termination for cause provision was not applicable.  The Employer argued that Courts should consider whether one provision impacts the other and determine if they are entangled in any manner – if not, the Employer argued that there is no reason why the invalidity of one clause should impact on the enforceability of the other.

The Court of Appeal rejected the argument. It held that the contract must be read as a whole, and not on a piecemeal basis.  According to the Court of Appeal, the correct approach is to look at the termination provisions as a whole to determine if they violate the ESA irrespective of the actual circumstances of the termination.  It did not matter that the Employer did not rely on the termination for cause provision because the Court had to determine the enforceability of the provisions at the time the contract was executed, not at the time of the termination.

The Employer also argued that the severability clause ought to be applied to “sever” the illegal clause from the contract. The provision provided:

You agree that if any covenant, term, condition or provision of this letter outlining the offer of employment with the Company is found to be invalid, illegal or incapable of being enforced by a rule of law or public policy, all remaining covenants, terms, conditions and provisions shall be considered severable and shall remain in full force and effect.

The Court of Appeal rejected this argument also, and held that the severability clause does not have any effect on clauses of a contract that have been made void by statute and in light of the findings that  the entire agreement must be considered as a whole to determine its enforceability.

In our view, the Court of Appeal decision is flawed and open to challenge to the Supreme Court of Canada. To ignore the actual circumstances surrounding the termination seems to ignore an important contextual element that ought to have some bearing on the analysis.  In this case, the severability clause could have been given effect to reflect the fact that the illegal clause was not applicable to the facts before the Court. If a clause has no application to the circumstances before the Court, it is an odd result that an otherwise enforceable, clearly drafted, termination without cause provision should be set aside as invalid.

In a recent decision from the Ontario Superior Court, Alarashi v. Big Brothers, the Court noted that the “with cause” termination that had no applicability to the circumstances before the Court since the employee was terminated without cause and the provision did not apply in the context of that specific termination. In this case, the Superior Court reviewed the termination for cause language and held that it was enforceable. Ultimately, the termination without clause in this case was also deemed to be unlawful because it provided for termination pay or severance pay. The ESA provides that in certain cases an employee may be entitled to both termination pay and severance pay, so that clause could be applied in a manner that excluded one of termination pay or severance pay and was, therefore, unenforceable. The Court noted that it should not strain to find ambiguity capable of invalidating a termination clause if there is no ambiguity to be found.

Employers must draft termination clauses with tremendous caution and precision. Any and all ambiguity will be resolved in favour of the employee which could render termination provisions in employment agreements unenforceable. Based on this decision from the Court of Appeal, Employers should review the entire termination provision in employment agreements, including both the termination for cause language and termination without cause language, with a view to ensuring compliance with the ESA viewed as a whole.  This decision may be appealed by the Employer to the Supreme Court of Canada. We will keep you up-to-date if there are any additional developments.

Could the COVID-19 Pandemic Result in a Frustration of Contract?

Many businesses have been forced to shut down due to Ontario’s Emergency Management and Civil Protection Act, which is an emergency declaration that has been extended until June 2, 2020.  These are uncertain times and the fact is that the pandemic may have significant, lasting and permanent impacts on business. In particular, the impact of this emergency could radically change the nature of existing employment relationships, and importantly, could even render some existing employment agreements impossible to perform. In such a case, the doctrine of frustration of contract may apply to relieve an employer from the contractual commitments.

The application of the doctrine of frustration is rare in employment circumstances. It typically arises in cases of a permanent disability that prevents an employee from ever returning to the workplace. In other words, the contract of employment becomes impossible to perform. If, by no fault of either party, an unexpected, radical or intervening event has occurred (such as a pandemic) and it becomes impossible to perform, an employment contract could be frustrated and both parties would be discharged from further performance of their obligations under the contract.

Here are some general considerations:

  • A significant drop in business on its own is likely not an adequate basis to result in a frustration of an employment contract. Employers are expected to endure economic slowdown and cannot rely on this doctrine to be relieved of contractual commitments because business has dropped;
  • If your business has remained opened during the pandemic, the doctrine of frustration will be significantly more difficult to assert. In order for the doctrine to apply, “impossibility” of performance is required. So, if your employees are able to work from home, the condition of impossibility is not present. In other words, if measures can be implemented to allow an employee to continue working, the doctrine of frustration will not likely apply; and
  • If the impact of COVID-19 is temporary in nature, the doctrine of frustration will not likely be successful. On the contrary, if the impact is permanent, lasting and radical changes to the business model that existed before the pandemic struck are necessary, the doctrine of frustration may apply.

Employers should consider whether the doctrine of frustration applies. Each employee relationship will need to be assessed on an individual basis. If the doctrine does apply, this may offer employers some relief from onerous contractual commitments, common law obligations such as reasonable notice of termination and/or relief from statutory termination pay as required by the Ontario Employment Standards Act, 2000.  It is important to seek legal advice before taking this position given the high onus that is required and the various exceptions that may apply. Please contact one of our lawyers if you have any questions about the doctrine of frustration.