Nicole Howell nhowell@hhbg.ca 604.696.5116 I. Fixed term - - PowerPoint PPT Presentation

Nicole Howell nhowell@hhbg.ca 604.696.5116

I. Fixed term contracts II. Drafting termination clauses

• III. BONUS: Consideration – an important ‘hot off the

presses’ BCCA decision from last month

• IV. Employees nearing retirement

• I. FIXED TERM CONTRACTS

Why?

• Can’t afford to hire a permanent employee
• The work is for a specific project or a set time period
• Want to avoid severance obligations

Pitfalls

The reality is that fixed-term contracts are misunderstood:

• Absent an early termination clause, employers are liable to pay out the balance
• f the fixed term contract
• Even if the employee finds another job (no duty to mitigate unless stated)
• If the fixed-term contract expires and the employee continues working, they

automatically revert back to their common law entitlement to reasonable notice

• Ranging from 1 – 24 Months, based on an employee’s age, position, length of service, and

chances of re-employment

Howard v. Benson 2017 ONCA 256

• The employee was on a five-year fixed term contract with an early

termination provision that read: Employment may be terminated at any time by the Employer and any amounts paid to the Employee shall be in accordance with the Employment Standards Act of Ontario.

2 problems with the termination clause:

• a. It was not clear whether the term “any” meant that the payments

would be discretionary;

• b. It was not clear whether “amounts paid” mean commission, bonus
• etc. or just base salary.

• What happened:
• The termination clause was unenforceable
• There was no implied duty to mitigate the damages
• mitigation was an aspect of common-law and the parties had contracted out of

common-law notice

• No duty to mitigate was stipulated in the contract
• The employee was paid out the balance of his 5 year contract

Takeaways:

• Avoid fixed term contracts
• If you DO need a fixed term contract:
• have an enforceable early termination clause;
• consider the employee’s duty to mitigate; and
• if the contract needs to be extended, address this in writing before

the fixed term expires

If Not Fixed-term Contracts, Then What?

• Stick with a contract of indefinite hire
• with a clearly worded termination clause
• that effectively contracts out of the employee’s common law

right to notice.

• II. DRAFTING TERMINATION CLAUSES
• Absent an enforceable termination clause, employees have an implied right to

reasonable notice under the common law

• Several ways to limit an employer’s liability on termination:

a. Statutory entitlements only b. Set amount (e.g. 6 months) or formula (e.g. 2 weeks for each year)

• Consider imposing a duty to mitigate
• Consider whether bonuses and other perks will be excluded from this entitlement:

i. Needs to be clearly stated ii. Can’t avoid any statutory obligations

Creating a specific ‘for cause’ termination clause

• Basic ‘for cause’ provision: the company has no notice or severance obligations to

the employee in the event of a termination for cause.

• Some employers go further and specifically list what will amount to cause.
• If you fail included a catch-all phrase at the end that also incorporates common law

cause, you may be limited to the examples you have identified for cause.

• Either way, the court will use a contextual analysis to determine whether – despite

the misconduct – cause has been established.

• Cause is typically an uphill for employers, so again, the more the ‘without cause’

provision limits liability, the less you have to worry about upholding / or relying on a ‘for cause’ termination.

Wood v. Dealey 2017 ONCA 158

The Company is entitled to terminate your employment at any time without cause by providing you with 2 weeks’ notice of termination or pay in lieu thereof for each completed or partial year of employment with the

• Company. If the Company terminates your employment without cause,

the Company shall not be obliged to make any payments to you other than those provided for in this paragraph The payments and notice provided for in this paragraph are inclusive of your entitlements to notice, pay in lieu of notice and severance pay pursuant to the Employment Standards Act, 2000.

2 problems with the termination clause:

• a. The clause excluded the employer’s statutory obligation to

contribute to Ms. Wood’s benefit plans during the statutory notice period (required under the Ontario ESA)

• b. The clause did not require the employer to pay severance upon

termination (required under the Ontario ESA).

Takeaways:

• Where the termination clause says that the payment it describes is the
• nly one that will be given to the employee, the clause will not be enforced

if it does not clearly and unambiguously cover all possible liabilities under the ESA

• Actions of the employer subsequent to the signing of the contract and the

termination, such as additional payments, will have no bearing on the enforceability of the contract

North v. Metaswitch 2017 ONCA 790

• (c) Without Cause – The Company may terminate your employment at any time in its sole

discretion for any reason, without cause, upon by [sic] providing you with notice and severance, if applicable, in accordance with the provisions of the Ontario Employment Standards Act (the “Act”). In addition, the Company will continue to pay its share all [sic] of your employee benefits, if any, and only for that period required by the Act. The reference to notice in paragraphs 9(b) and (c) can, at the Company’s option, be satisfied by

• ur provision to you of pay in lieu of such notice. The decision to provide actual notice or pay in

lieu, or any combination thereof, shall be in the sole discretion of the Company. All pay in lieu of notice will be subject to all required tax withholdings and statutory deductions. In the event of the termination of your employment, any payments owing to you shall be based on your Base Salary, as defined in the Agreement.

• Problem with the termination clause:
• It limited the notice to base salary and excluded commission.
• BUT there was a severability provision at the end of the contract:
• 17. General Provisions

(a) If any part of the Agreement is found to be illegal or otherwise unenforceable by any court of competent jurisdiction, that part shall be severed from this Agreement and the rest of the Agreement’s provisions shall remain in full force and effect.

What happened:

• There were two approaches open to the Court in addressing this

contract

• First approach: looks at the contract as a whole and applies the

severability provision first, and only then looks to the remedial power of the ESA to void any clause that is in violation of that Act.

• Rationale: gives effect to the intention of the parties through the

language of the contract. I.e. the parties would have intended the severability clause to take effect to save the contract if there were any issues.

• Second approach: treats employment contracts differently than other

commercial contracts and sanctions employers for their failures to comply with the ESA. This principled approach first applied the ESA and voids any provision that purports to contract out of it. Only then would the severability clause be applied to any other relevant part of the contract.

• Using this second approach, the ONCA voided the notice provision and

found the employee was entitled to common law notice.

• Of note, the offending portion was in its own separate paragraph and

could have been cleanly excised from the notice provision.

Takeaway: Severability clauses will not protect employers from illegal termination clauses.

• Consideration is the benefit received by each party to make a contract

enforceable

• E.g. employers receive the benefit of the employee’s services and

employees receive the benefit of compensation

• Without consideration, a contract is NOT enforceable.
• Until May 18, 2018, if an employer wanted to vary a contract, fresh

consideration (a new benefit) was required for both parties.

• III. CONSIDERATION

Rosas v. Toca 2018 BCCA 191

• The BC Court of Appeal now says that new consideration is not required

to modify an existing contract.

• Facts: Rosas won 4.1M in the lottery and loaned $600,000 to her friend

Toca who agreed to repay her the following year. Each year, Toca asked for an extension to repay the loan. After 7 years, Rosas sued her friend. Supreme Court said Rosas received no consideration for each new contract extension and was out of time on original contract ( 6 year limiation).

• The BC Court of Appeal favourably cited the dissenting judge’s decision

in an Alberta Court of Appeal employment case in which the dissenting judge advocated for this approach.

• In the employment context, here are some examples of how this could arise:
• Hired an employee based on a verbal agreement (compensation, title, bonus, benefits, and

start date) and then presented the employee with a written contract on day 3 of their job containing a termination clause or a non-compete clause (not previously discussed) and no new benefit for the employee.

• Decided that you needed to add termination clauses to an employee’s contract; amended

existing termination clauses; or added a non-compete. Created a new contract and got your employee to sign it without some new benefit for the employee.

• Not recommending this as a practice, but until (or unless) the Supreme Court
• f Canada changes this pronouncement of the law, this case is authority that

may help you if you find yourself in one of the above situations.

• IV. EMPLOYEES NEARING RETIREMENT
• i. Performance issues
• Pace, technical ability, and adaptability of near retirement employees
• Special considerations when having performance discussions?
• Junior, lower paid employees outperforming senior higher paid employees
• Employers should approach performance issues the same way regardless
• f the age of the employee – valid performance concerns should be identified and addressed.
• Terminate with cause or without cause
• If an employer has a non-discriminatory reason for terminating an older employee and decides to offer

the employee the option of “early retirement” it is not age discrimination.

• ii. Health and attendance issues
• Health and attendance issues may arise more frequently with employees nearing retirement
• May be the reason for declining performance
• Human rights – duty to accommodate to the point of undue hardship
• Employers should approach health and attendance issues the same way regardless of the

age of the employee

• iii. Requests by employee to move to part-time (as they transition to

retirement)

• Does an employer have to agree?
• Can there be a fixed timeline for that arrangement, after which the employee

has to retire or move back to full-time?

• Business decision

• iv. Can you talk to employees nearing retirement about their retirement

plans?

• Succession planning
• Knowledge transfer
• Hiring / training replacements
• Reasonable inquires and acceptable incentives vs. unacceptable pressure to retire

Deane v. Ontario [2011] O.H.R.T.D. No. 1868

Unacceptable pressure to retire:

• The manager initiated conversations with the employee about the advantages of retirement a

number of times including telling her that she would be “foolish” not to retire and putting two retired employees on a conference call with her

• The manager discouraged the employee from applying to permanent position (her 21 year career

had been spent on a long series of secondments) and told her there were young people applying whose experience would “blow her away”.

• The employee applied anyway and was 4th in the competition for 3 positions

Dalton v. Coast Mountain Bus Co. 2009 BCHRT 340

Acceptable incentive to retire:

• Employer investigated and concluded the employee had committed time theft.
• He was told he could either be terminated for cause or, given that he was close to retirement with

an unreduced pension, he could be transferred to a supervised position if he agreed to retire

• nce he reached that point.
• He refused, resigned and claimed discrimination and that he was forced to retire
• The BCHRT rejected his claim on 2 grounds:

i. If the employer was acting based on Dalton’s age, it was by offering him an extra benefit, not adverse treatment; ii. If the true intent of the employer was to terminate Dalton due to his age, they wouldn’t have offered him the gratuitous benefit of staying on until eligible for retirement.

Hill v. Workers’ Compensation Appeal Tribunal 2011 BCHRT 327

Acceptable incentive to retire:

• A WCAT tribunal member was told that her appointment would not be renewed, but because

she was close to retirement, they would continue her appointment for a few extra months to allow her to claim early retirement.

• BCHRT found that this was not discriminatory: the offer did not raise an inference that her age

was a factor in WCAT’s decision about her employment

Scott v. Sears Canada Inc. [2013] BCHRTD No. 15

Acceptable inquiry about retirement plans:

• Scott was a 59 year old sales associate with 30 years service. During a conversation with his

manager about his pension, Scott asked what his pension would be if worked until 65. His manager asked him if he was planning on retiring and Scott said he didn’t know.

• At that same time, Sears hired another associate to replace a previous one with whom Scott

had shared territory with and this caused Scott’s income to go down. Scott quit and claimed age discrimination

• BCHRT found there was no age discrimination:
• “It is not a breach of the Code to simply ask about retirement, particularly given the context in which the question

was asked. It was a reasonable inquiry in the circumstances”.

Takeaways:

• Employers can raise the issue of retirement and offer an exit

packages or “retirement packages”, whether in the context of a larger discussion about future plans or in the context of terminating with or without cause

• Only if there is unacceptable pressure to retire will the employer be

at risk for a finding of discriminatory conduct

Nicole Howell nhowell@hhbg.ca 604.696.5116