TRICKS OF THE TRADE: A look at Employment Law from Employment - - PowerPoint PPT Presentation

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TRICKS OF THE TRADE: A look at Employment Law from Employment Contracts to Terminations

Donovan Plomp, McCarthy Tétrault LLP Simon Kent, Kent Employment Law

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Introduction

¬ We have all heard the old expression “An ounce

• f prevention is worth a pound of cure”.

¬ This sentiment is particularly applicable to the question of whether to have a written employment agreement. ¬ When terms and conditions and conditions of employment are not clearly recorded in a contract, costly litigation can ensue.

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Introduction cont’d

¬ Challenging to implement this as HR professionals ¬ “Slow to hire quick to fire” often has merit. ¬ Lawyers and HR Professionals are more likely to hear “Hire this flawless person yesterday.” ¬ Time pressure + rose tinted glasses= $$ and problems in the future.

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Introduction cont’d

¬ This presentation will review: a) The status quo: What do you have without a contract? b) Key issues such as hours of work, overtime and termination provisions. c) How to protect confidential and business information/interests. d) Employment Litigation: The process and key issues.

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What Do You Have Without A Written Contract?

Liability on Termination ¬Usually the biggest liability for employers without a written employment contract are the common law

• bligations that arise when the employment of an

employee is terminated without cause and without notice. ¬The statutory requirements are found in the Employment Standards Act. These are relatively modest, topping out at eight weeks.

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What Do You Have Without A Written Contract? cont’d

¬ Based on the employee’s length of service, age, type and character of position and the availability of suitable alternative employment, the common law notice requirement can be 24 months and higher. ¬ For any executive position, you can expect common law notice will be at least six months for even young and short-service employees.

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What Do You Have Without A Written Contract? cont’d

¬ A major difficulty with the common law implied term to give reasonable notice is that it generates a range of possibilities. ¬ The range of notice is assessed on a case-by- case basis, so it is difficult to predict the exact range of reasonable notice a court may award.

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What do you have without a Written Contract? cont’d

The duty to mitigate ¬While employees have a “duty to mitigate” by attempting to find other work, the onus is on the employer to prove alternative employment exists. ¬In areas without detailed job postings, practical difficulties: competitors don’t want to swear affidavits or testify to help defend you.

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What Do You Have Without A Written Contract? cont’d

Litigation costs ¬The vast majority of cases involving claims for reasonable notice are settled before trial. ¬However, lawyers are usually involved once litigation is commenced, and costs are incurred in drafting pleadings, disclosing documents, attending discoveries, and in undertaking negotiations.

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What Do You Have Without A Written Contract? cont’d

¬ Plaintiffs have a significant degree of leverage in pressuring an employer into settling because:

a) the onus of proving that an employee can find

• ther work rests on the employer; and

b) the Summary Trial Procedure under the Rules of Court allows the employee to obtain a speedy court date (within a few months) and have the matter adjudicated entirely on affidavits, which reduces the amount of time and cost an employee must incur.

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What Do You Have Without A Written Contract? cont’d

¬ If the termination is without cause, unless the employee mitigates completely the very next day, they are assured of receiving at least some money from the employer in a litigation action. ¬ Accordingly, unless the Employer tenders a formal offer which is better than what they recover, they will usually be awarded costs.

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What Do You Have Without A Written Contract? cont’d

¬With an enforceable written employment contract, all of this time and expense is eliminated. ¬The employer simply pays out in accordance with the terms of the agreement and both parties get on with their lives.

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What do you have Without a Written Contract? cont’d

Uncertainty arising from recruitment process ¬Be cautious of the direct and indirect representations ¬Negligent misrepresentation: Khan v. Vernon Jubilee Hospital (2008,BCSC)

¬ Dr. Khan was recruited to join Vernon Jubilee Hospital to practice thoracic surgery. ¬ Had his own successful practice in Owen Sound, Ontario for 30 years. ¬ Agreed to move to Vernon in 2002. Was assured he could practice there until retirement.

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What do you have without a written contract? cont’d

¬ Contract terminated after 2 years because thoracic surgery program moved from Vernon. ¬ Interior Health authority knew but did not disclose during negotiations. ¬ Income until retirement awarded ($243,500) ¬ Duty of care to provide accurate information about the job when employer knows employee will rely on it. ¬ “Entire Agreement” clause in employment agreement is a good precaution.

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What do you have without a written contract? cont’d

¬ Inducement: Wallace v. United Grain Growers (1997, SCC)

¬ Reasonable notice may be increased if employee was induced to leave secure employment ¬ Not all inducements will carry equal weight when determining the appropriate period of notice ¬ Enforceable termination clause specifying severance in employment agreement eliminates this issue.

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What do you have without a written employment contract? cont’d

Confidential information and restrictive covenants

¬Employers are often surprised to learn that employees, subject to certain limited and uncertain exceptions for fiduciary employees, are entitled to quit their job and begin competing with their employer the very next day. ¬The employer may be able to claim some damages for its losses resulting from the employee’s failure to give notice of their resignation, but cannot obtain an injunction preventing competition without a written agreement.

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What do you have without a written contract? cont’d

¬ RBC Dominion Securities v. Merrill Lynch 2008 SCC 54

¬ Cranbrook RBC Dominion Securities Manager helped coordinate move of himself and almost all investment advisors to Merrill Lynch. ¬ Did not inform his supervisors and blindsided them with departure of entire branch.

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What do you have without a written employment contract cont’d

¬ Case went all the way to SCC ¬ $225,000 awarded against advisors for unfair competition at trial was overturned. Without non-compete, free to start competing the moment after they leave. ¬ Award against advisors was $40,000 total for failure to give reasonable notice of resignation (2.5 weeks).

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What do you have without a written employment agreement? cont’d

¬ Absent a written employment agreement, an employee still has an obligation to hold an employer’s confidential information in confidence and not disclose it following the employment. ¬ However, the question of what constitutes “confidential information” is something that would have to be decided by the court. ¬ Doubt or disagreement in this regard can lead to substantial time and litigation costs.

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The Contract of Employment-Key Terms and Issues

Date of signing ¬Ensure agreement is signed before employee starts work. If after, reflect that in the draft ensure some nominal payment or consideration is given to confirm enforceability. Parties ¬Identify the parties using the correct legal name

• f the employer.

¬Address situations where employees will perform work for groups of companies.

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The Contract of Employment-Key Terms and Issues cont’d

Pre-Conditions ¬State explicitly any conditions that must be met before employment begins, such as: ¬ a satisfactory criminal records check; ¬ a certificate of fitness for the duties of the position; or ¬ completion of a course of study.

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The Contract of Employment-Key Terms and Issues cont’d

Term ¬Is the agreement for a definite or indefinite term? ¬If for a definite term, is there automatic renewal or termination in absence of notice?

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The Contract of Employment-Key Terms and Issues cont’d

Duties

¬Include such other duties as may reasonably be assigned from time to time by the employer consistent with status to ensure flexibility. ¬Consider potential for change in reporting structure.

Place of Employment

¬Stipulate location, commonly reasonable commuting distance from head office. ¬Stipulate if frequent travel required.

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The Contract of Employment-Key Terms and Issues cont’d

Compensation and Benefits

¬Salary Common to say it will not decrease or will be reviewed annually. Benefits Ensure benefits are subject to the terms and conditions of benefit plans and subject to amendment from time to time. Equity Ensure equity grant and vesting language works in Canada (no “at will” employment.)

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The Contract of Employment-Key Terms and Issues cont’d

¬ Equity continued Saalfeld v. Absolute Software Corporation, 2009 BCCA 18 ¬ Ms. Saalfeld was granted stock options pursuant to a Share Option Plan. ¬ Plan said no option may be exercised upon a termination without cause after “the last day on which the employee is to work for the company”.

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The Contract of Employment-Key Terms and Issues cont’d

Equity Continued ¬ Trial judge found plan must be read as “lawful” termination of employment, i.e., termination on reasonable notice. ¬ Thus, she was entitled to exercise her options for the reasonable notice period and damages were awarded accordingly. ¬ Could have been fixed in grant agreement/equity plan or employment agreement by expressly excluding exercise during notice period.

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The Contract of Employment-Key Terms and Issues cont’d

¬ The “Discretionary” Bonus. ¬ Law to the effect that discretion must be exercised reasonably. ¬ If Company wants to retain unfettered discretion to set or decline bonus, should be stated in contract. ¬ Bonus will normally be awarded if it would have fallen due during reasonable notice period.

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The Contract of Employment-Key Terms and Issues cont’d

Overtime ¬Exemptions for overtime in British Columbia are extremely limited. ¬Managers are the most common exemption. ¬If an employee is eligible for overtime, their employment contract should say “minimum hours

• f work are as follows” and “salary is paid in

compensation for all hours of work”. ¬Common mistake is employer sets hours of work for salaried employees, who then may have a claim if they work beyond those hours of work.

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The Contract of Employment-Key Terms and Issues cont’d

Employer Policies ¬If the employer has policies or rules which will apply to the employment relationship, they should be referred to in the contract. ¬A copy should be provided to the employee, and a provision included by which the employer is entitled to amend them.

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The Contract of Employment-Key Terms and Issues cont’d

Termination Provisions ¬ Termination without cause or notice triggers statutory (Employment Standard Act) and common law obligations of the employer. ¬ The statutory requirement can be satisfied, and the common law obligation can be supplanted, by an enforceable written agreement about termination that is clearly drafted and at least meets the employment standards minimum.

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The Contract of Employment-Key Terms and Issues cont’d

¬ For such an agreement to be valid and enforced by the courts, it must have been part of the offer

• f employment.

¬ Evidence that the employee did not fully understand the effect of the term or that the employee was pressured to agree to such a term will compromise enforceability. ¬ Give time for employee to consider and seek legal advice.

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The Contract of Employment-Key Terms and Issues cont’d

¬ You will need to consider and draft clear language on the following points:

a) how much notice or compensation is to be provided for termination without cause? b) will compensation be provided in a lump sum or by salary continuance? c) with salary continuance, will there be a requirement to mitigate?

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The Contract of Employment-Key Terms and Issues cont’d

d) if the employee typically earns commissions or bonuses, what compensation for those items will be provided for the notice period?

e)when will benefits end and what compensation if any will be provided in lieu of benefits? and f) how will various monetary benefits be treated, such as car allowance, stock options, employee purchase plan, or pension?

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The Contract of Employment-Key Terms and Issues cont’d

¬ Often duties change over time, but the contract does not. ¬ Clause confirming provisions of contract remain in effect notwithstanding change in duties/remuneration is advisable. ¬ Schmidt v. AMEC Earth and Environment et al 2004 BCSC 1012. ¬ Found termination clause no longer applied as “substratum” of contract had changed due to change in position over time.

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The Contract of Employment-Key Terms and Issues cont’d

Entire Agreement Clause ¬Clause confirming Agreement: i)supersedes all previous agreements; ii)contains all of the terms and conditions agreed to between the parties (be cautious not to exclude

• ther applicable agreements or policies);

iii)confirms no reliance on representations outside

• f Agreement.

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Protections for Employee

¬ “Good Reason”: Parties can enumerate what can allow executive to terminate contract, beyond common law of constructive dismissal. ¬ “Change of Control”: Additional payment for Executive either upon change of control (single trigger-uncommon) or change of control and termination (double trigger).

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Dispute Resolution Provisions

¬ Court or arbitration: Court public, inflexible,

• slower. Arbitration private, quicker, choice of

decision maker, greater input into process and timing and greater costs discretion for arbitrator.

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Required Policy: Bullying and Harassment

¬ WorksafeBC now requires employers to: a)develop a policy statement on bullying and harassment implement procedures for reporting and dealing with incidents or complaints; b)Inform workers of the policy statement and steps taken to prevent bullying and harassment, c)Train workers and supervisors, and d)Annually review the policy statement and procedures.

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Bullying and Harassment cont’d

¬ Workplace bullying and harassment: “Includes any inappropriate conduct or comment by a person towards a worker that the person knew or reasonably ought to have known would cause that worker to be humiliated and intimidated but excludes and reasonable action taken by an employer or supervisor relating to the management and direction of workers or the place of employment.: ¬ See www.worksafebc.com for more info.

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Bullying and Harassment cont’d

¬ Courts and Human Rights Tribunals will consider remedial measures taken by an employer when assessing damages for human rights complaints. ¬ One measure that will assist an employer in this regard is a clear, simple harassment and discrimination policy. ¬ In addition to assisting in legal defence, such a policy will ensure that complaints are dealt with early and in a clear way.

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Employee Handbooks

¬ Be cautious with employee handbooks. Sometimes less is better. ¬ Many employers put requirements in handbooks that end up not being enforceable as they contradict the employment contract or were not brought to the employee’s attention. ¬ Provisions regarding probation, termination of employment, vacation entitlement, duties and compensation should all be put in a contract of employment.

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Employee Handbooks cont’d

¬ Often companies inaccurately reproduce leave requirements or vacation requirements in handbooks which leads to confusion.

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How to protect confidential business information/interests

Confidentiality Agreements Common law obligation to keep confidential information in confidence BUT What is “Confidential information?” Define confidential information with precisions to supplement common law obligation.

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How to protect confidential and business information cont’d

Conflict of Interest ¬Employees should not be involved in any activity in which

• ther interests can directly or indirectly conflict with the

interests of their employer. ¬This is a breach of the duty of loyalty and good faith and the avoidance of such conflicts of interest is a duty of all employees. ¬It is useful to have management employees disclose their

• utside interests on a regular basis to help avoid such

conflicts arising or being perceived to have arisen.

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How to protect confidential business information/interests cont’d

Intellectual Property Protection Particularly important for technology companies. Covenants assigning inventions and other IP rights. Covenant requiring cooperation in completing documents or bringing litigation post-termination.

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How to protect confidential business information/interests cont’d

Non-competition and non-solicitation covenants Such covenants are considered a “restraint of trade” and are not enforceable unless the former employer can show that the restriction is reasonable in all of the circumstances. Assessment of reasonableness involves a detailed analysis of the business and its vulnerability to competition by former employees.

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How to protect confidential and business information cont’d

Ownership of Inventions ¬It is common for any employer engaged in product development or which otherwise relies on inventions and unique innovations in its business to have agreements with their employees to clarify the employer’s rights and the employee’s obligations in this regard. ¬Consider ownership of IP that is created incidentally to work/duties that are paid for by the employer.

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How to protect confidential business information/interests cont’d

¬ In Shafron v. KRG Insurance Brokers (Western)

• Inc. [2009] S.C.J. No. 6 the SCC held that an

employer who casts an overly broad covenant cannot rely upon the court to “read down” the covenant to a reasonable scope. ¬ Pick the minimum you need to get your business back on its feet.

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How to protect confidential business information/interests cont’d

¬ Precise drafting and employment contract termination provisions are very important: see Globex Foreign Exchange Corporation v Kelcher, 2011 ABCA 240. ¬ Court held that termination without cause and without notice means employer cannot rely upon restrictive covenants. ¬ Non-solicit prohibiting those clients with whom the Defendant had “dealings” was held to be too ambiguous to be enforced.

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The Litigation Process

Forum: Supreme vs. Provincial Courts ¬ Provincial (Small Claims) Court: claims up to $25,000. ¬ Mandatory mediation/settlement conference. ¬ Limited ability to recover costs. ¬ No ability to hear case on summary basis. ¬ Pro: Informal and geared to simplicity. ¬ Con (sometimes pro for defendants): Slow and unpredictable.

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The Litigation Process cont’d

Supreme Court of British Columbia ¬Unlimited monetary jurisdiction. ¬More formal and technical than provincial court. ¬Greater variety of resolution options, such as: a) Fast-Track process for claims that fit certain criteria. b) Summary trial process for claims where credibility is not in dispute.

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The Litigation Process cont’d

The BC Human Rights Tribunal ¬Can only hear claims of breach of the Human Rights Code, i.e. discrimination. ¬Excellent voluntary mediation process. ¬Ability to apply to dismiss claims on preliminary basis on affidavits. ¬Costs of litigation usually not awarded.

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The Litigation Process cont’d

The Employment Standard Branch ¬Can only recover amounts required by law under the Employment Standards Act. ¬Branch encourages mediation. ¬finding of breach means administrative penalty for employer ($500, then $1,500, then $10,000) ¬Costs not awarded to successful party.

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The Litigation Process cont’d

Supreme Court ¬ Notice of Civil Claim. ¬ 21 days to file Response to Civil Claim (longer for out of country defendants) ¬ Defendants must consider: a) Was termination for just cause, and if so, particulars. b) Scope of document disclosure obligations: can be surprisingly extensive.

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The Litigation Process cont’d

c) Who will be directing the litigation and gathering information? d) When should examinations for discovery take place and who will representatives be? Generally speaking: a) Delay favours the Defendant as the Plaintiff must mitigate. Accordingly, Plaintiff’s often attempt to schedule a trial or summary trial very quickly. b) The vast majority of these matters settle.

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The Litigation Process cont’d

Fast Track Rule 15-1 Applies if: a) Amount claimed is under $100,000, exclusive of interest and costs and b) Trial can be completed within 3 days. Does not prevent award over $100,000 Limits costs of losing party. Limits discovery to 2 hours each unless consent given. Requires trial date be set within 4 months. Restricts pre-trial applications.

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The Litigation Process cont’d

Rule 9-7 Summary Trial Matter heard by affidavit evidence before a judge. Much shorter than a trial. Not suitable if credibility is at issue on material facts. Usually suitable for without cause terminations where notice is the only issue.

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The Litigation Process cont’d

¬ General Comments

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Summary: Top 10 Mistakes

• 1. Assuming everything will be great.
• 2. Drafting internally to save costs.
• 3. Drafting in a rush.
• 4. Not inserting a termination provision.
• 5. Relying on “standard” documents from another

jurisdiction or deal.

• 6. Having executive start before agreement

finalized.

• 7. Not having agreement signed or retaining

signed copy.

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Top 10 Mistakes cont’d

• 8. Unenforceable or vague termination provisions.
• 9. Unenforceable restrictive covenants.

10.Unenforceable bonus policies.

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Conclusion

¬ Questions? Simon Kent Donovan Plomp Kent Employment Law McCarthy Tetrault 604 266 7006 604 643 7156

simon@kentemploymentlaw.com

dplomp@mccarthy.ca

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