Archive for the ‘Other’ Category

Shafik Bhalloo
Tuesday, January 7th, 2014    Posted by Shafik Bhalloo (posts) and Devin Lucas (posts)
Shafik Bhalloo
Shafik Bhalloo has been a partner of Kornfeld LLP since 2000. His practice is focused on labour and employment law, and on commercial and civil litigation. He is also an Adjudicator on the Employment Standards Tribunal and an Adjunct Professor in the Faculty of Business Administration at Simon Fraser University.
Devin Lucas
Devin Lucas maintains a general civil litigation practice with a focus on corporate and commercial litigation and landlord tenant and real property disputes. His commercial litigation experience includes contractual disputes, employment matters, and debtor-creditor law.

 

by Devin Lucas and Shafik Bhalloo

In IBM Canada Limited v. Richard Waterman[1], Richard Waterman (“Waterman”) was employed by IBM Canada Ltd. (“IBM”) for approximately 42 years before he was dismissed on March 23, 2009 without cause.  Waterman, aged 65, was given two months’ notice.  Prior to his dismissal, Waterman had been a long-standing member of IBM’s defined benefit pension plan (the “Plan”).  According to the terms of the Plan, IBM contributed a portion of Waterman’s salary to the Plan on his behalf.  The Plan guaranteed certain benefits upon Waterman’s retirement.  Upon termination, Waterman was eligible for a full pension; however, both his employment contract and the Plan did not address whether Waterman could receive his salary and pension concurrently.  Waterman refused to accept the severance package offered by IBM and filed suit, claiming damages for wrongful dismissal.

 

Trial Decision

One of the primary issues before the British Columbia Supreme Court was whether the pension benefits paid to Waterman should be deducted from an award for damages for wrongful dismissal.   After a summary trial hearing, the Trial Court awarded Waterman 20 months’ notice and refused to deduct the pension benefits paid to Waterman during the notice period in determining his damages.  With respect to the issue of the deductibility of pension benefits, the Trial Court held that it was bound by the British Columbia Court of Appeal decision in Girling v. Crown Cork & Seal Canada Inc. [2]  In Girling, the Court of Appeal had expressly rejected the argument that retirement benefits must be deducted from an award of damages.  The Trial Court cited Girling, at paragraph 46, as follows:

It was argued on behalf of the employer that the governing principle in awarding damages for wrongful dismissal is prima facie the amount the employee would have earned had the employment continued, in this case, until the end of the notice period.  It was submitted that this employee would not have been entitled to receive a retirement pension while still working and receiving pay. In short, an employee is not entitled to pension and pay at the same time and without deduction one from the other.  I do not accept this.

I am in accord with the resolution of this conundrum by the Chambers judge who determined that the pension benefits of the employment contract are collateral benefits of the employment contract which should not be considered income and should not be deducted from damages which are income in lieu of notice. The damages (pay in lieu of notice) flow from breach of the employment contract and the collateral pension benefits are payable pursuant to the contractual arrangements therefor. They are not to be modified by the appearance of duplication.

In the Trial Court’s opinion it was bound by Girling and noted that until a higher court holds to the contrary, pension benefits are not deductible from an award of damages for wrongful dismissal.

The British Columbia Court of Appeal Dismisses Appeal

IBM appealed the decision to the British Columbia Court of Appeal and asked for an order that pension benefits paid to Waterman during the applicable notice period be deducted from the award of damages against IBM.   Madam Justice Prowse, writing for a unanimous court, dismissed IBM’s appeal.  In so holding, Madam Justice Prowse found that the pension benefits paid to Waterman were not a substitute for salary, nor were they payments made in lieu of salary.

According to Madam Justice Prowse, whether or not a dismissed employee would be entitled to both salary and payment of his or her pension benefits during the notice period turns on the interpretation of the contractual relationship between the employer and the employee.  As noted above, there was nothing in the Plan or the employment contract that prohibited Waterman from receiving pension benefits and salary simultaneously.

Madam Justice Prowse went on to hold that it is not inherently contradictory for an employee to receive both a salary and pension benefits and, in fact, there are many examples of that occurring in today’s workforce, including employees receiving statutory pension benefits, private pension benefits from employment, and payments from an employer where the employee has earned a pension, retires, and is subsequently hired back.

In obiter, Madam Justice Prowse briefly considered broader policy arguments and stated at para. 64:

[64]   I would add that I do not take the position that Mr. Waterman is entitled to his pension benefits because it would be “wrong” for IBM to receive a set-off of these benefits against salary.  In other words, my decision is not predicated in any way on the concept of punishing a wrongdoer.  I do not think that notions of “right” and “wrong” are useful in dealing with what is essentially a contract analysis.  I note as a practical matter, however, that if pension benefits could be deducted from salary in circumstances such as these, the result could be viewed as an invitation to employers facing economic hardship to terminate senior employees with many years of service who have vested pension rights and entitlement to a significant pension, rather than more junior employees without vested rights, since laying off the former would result in a significant offset of pension against salary in estimating damages for wrongful dismissal.  A policy argument could be mounted for arguing that the employment contract should be interpreted in such a way to avoid such a result, but no such policy argument was advanced in this case.

 

The Supreme Court of Canada Decision

On Appeal by IBM, the Supreme Court of Canada considered the issue of whether Waterman’s pension benefits should be deducted from the wrongful dismissal damages payable by IBM.  In a 7-2 divide, the majority of the Supreme Court of Canada dismissed IBM’s appeal and ruled that Waterman’s pension benefits were not deductible.

Justice Cromwell, writing for the majority, held that employee pension payments, including payments from a defined benefits plan, should normally not reduce the damages otherwise payable for wrongful dismissal.  Justice Cromwell found that pension benefits are a type of deferred compensation for the employee’s service and can be likened to a form of retirement savings.  Justice Cromwell rejected the proposition that pension benefits are intended to protect an employee from wage loss due to unemployment.  According to Justice Cromwell, two factors weighed heavily in favour of not deducting Waterman’s pension benefits from his damages award.  Firstly, Waterman had contributed to the Plan from his salary.   Secondly, as noted above, pension benefits are not intended to indemnify an employee for lost wages.  On this basis, Justice Cromwell concluded that Waterman’s interest in the pension benefits had similar hallmarks to property rights and, accordingly, Waterman had enforceable rights over the benefits.

Justice Cromwell briefly touched upon certain policy concerns.  Specifically, Justice Cromwell expressed unease regarding possible incentives for employers to terminate employees possessing pensions rather than non-pensionable employees and stated at para. 93:

[93]   These factors are also relevant here, although, in this case, they support not deducting rather than deducting the benefits. Unlike in Sylvester, non-deduction in this case promotes equal treatment of employees. If deduction is permitted, an employee who is eligible to receive his or her pension but has not reached 71 years of age can, by means of wrongful dismissal, be forced to retire and draw on his or her pension benefits. By contrast, an employee who is not entitled to his or her pension receives either a deferred pension or the commuted value of it plus full damages for wrongful dismissal and an employee over the age of 71 receives both pension and employment income.  Deducting the benefits only in the case of employees in Mr. Waterman’s situation would constitute unequal treatment of pensionable employees. Moreover, deductibility seems to me to provide an incentive for employers to dismiss pensionable employees rather than other employees because it will be cheaper to do so. This is not an incentive the law should provide. While this is a broader policy consideration, it is directly related to the benefit in question and has a reasonable basis in fact.

In a strong dissent, Chief Justice McLachlin and Justice Rothstein found that Waterman’s pension benefits should be deducted from the calculation of his damages award for wrongful dismissal.  The dissent focused on the governing principle of damages in the case of breach of contract, which is to put the non-breaching party in the position he or she would have been in had the contract been performed.  By declining to deduct Waterman’s pension benefits, the dissent ruled that Waterman was receiving a windfall, and that Waterman would get more than he bargained for and would charge IBM more than it agreed to pay.  In contrast to the majority’s approach, the dissent found that employer-provided benefits could not be separated from an employment contract.  In the dissent’s view, they are to be considered as one “single contract” and, as such, Waterman’s entitlements largely depend on the ordinary rule of contract damages.

The Effect of the Supreme Court of Canada’s Ruling

This leading decision of the Supreme Court of Canada is noteworthy as it affirms the view that pension benefits should not ordinarily be deducted from wrongful dismissal damages.  This ruling favours pension-eligible employees and provides some much-needed certainty to this area of law.  Nevertheless, given the strong dissent advanced by Chief Justice McLachlin and Justice Rothstein, there is still some possibility of debate in future cases on the deductibility of pension benefits from wrongful dismissal damages.  Moreover, it is unclear how a Court would rule in the face of an employment contract or pension plan that contained a clause holding that wrongful dismissal damages and pension benefits are not to be paid concurrently.


[1] 2013 SCC 70

[2] (1995), 9 B.C.L.R. (3d) 1

 

Posted by Shafik Bhalloo (posts) and Devin Lucas (posts) | Filed under Other | ....
Shafik Bhalloo
Tuesday, September 17th, 2013    Posted by Shafik Bhalloo (posts)
Shafik Bhalloo
Shafik Bhalloo has been a partner of Kornfeld LLP since 2000. His practice is focused on labour and employment law, and on commercial and civil litigation. He is also an Adjudicator on the Employment Standards Tribunal and an Adjunct Professor in the Faculty of Business Administration at Simon Fraser University.

Employment Contracts and Fresh Consideration

By Shafik Bhalloo, Sasha Ramnarine, Devin Lucas

 

An essential element in the formation and enforceability of any contract is consideration. Each party receives a benefit from the contract and may suffer corresponding detriment. This benefit and detriment are referred to as consideration. Without it, a contract is not binding or enforceable.

Employment contracts are no exception to this rule. Without consideration, any employment contract that is formed between an employer and employee is not enforceable.  In today’s economy, many employers are involved in reorganizing or downsizing. This often leads to the employer unilaterally changing the terms of employment of an existing contract by adding significant duties or reducing compensation or other benefits. An employer may ask an employee to sign a new contract with introduce more restrictive terms which have not previously been discussed with the employee. The employee often agrees to these changes without much question. The issue that arises in such situations is whether unilateral changes to a contract of employment made by the employer after the employee has started employment are enforceable if there is no new consideration provided to the employee.

Courts in Canada have held that fresh consideration must be given by the employer to the employee in exchange for modified terms to an existing employment contract.  The following cases demonstrate this principle.

In Singh v. Empire Life Insurance Co.[1], the primary issue before the British Columbia Court of Appeal was whether or not the terms of an Employment Agreement were enforceable.  Harry Singh commenced work on September 1, 1998 as the Regional Manager for the Vancouver Bayshore.  At Mr. Singh’s request, a representative of the employer provided a letter of comfort dated September 1 to Mr. Singh.  The letter stated:

This is a Letter of Comfort stating that Harry Singh is offered the position of Regional Manager of Empire Financial Group with a total compensation package of $170,000 made up a number of components.  Effective September 1, 1998.  A formal letter and contract will follow.

Subsequently, Mr. Singh received another letter dated the same day under the heading “Re Confirmation of Offer – Regional Manager, Vancouver Bayshore”.  This letter confirmed specific details of Mr. Singh’s employment with respect to his salary and the fact that the initial term would be for 2 years.  Mr. Singh continued in that employment for five months before the Employment Agreement was executed.  This agreement contained a termination clause stating that “the termination will be effective at the end of the appropriate period of notice according to applicable provincial legislation”.  In November 2012, Mr. Singh’s position became redundant and he was let go.  Mr. Singh then commenced an action against the employer claiming damages for the remaining ten months in the two year term.  The employer argued that the contract was terminable on two weeks’ notice pursuant to the Employment Standards Act.

 

The Court of Appeal upheld the lower court’s finding that the employer could not rely on the provisions of the subsequently signed agreement, which were less favourable to Mr. Singh than the terms of the original contract.  In so holding, the Court affirmed the leading British Columbia Court of Appeal decision of Watson v. Moore Corporation Ltd.[2]

 

In Watson, McEachern C.J.B.C., writing for the majority, found that unless the employer had a clear intention of terminating the employee’s employment prior to the employee executing the contract amendment, the mere forbearance from termination at this juncture was not adequate consideration for the amendment.

The Court of Appeal in Singh ultimately found that when the Employment Agreement was signed there was no benefit passing to Mr. Singh that he would not otherwise be entitled to.  As such, the contract was held to be unenforceable.

In the Ontario Court of Appeal case of Hobbs v TDI Canada Ltd.[3], the Plaintiff, Hobbs, was an experienced advertising salesperson who took a job with TDI Canada Ltd. (“TDI”). Prior to his start date, there was an oral agreement between Hobbs and TDI on the commission rates Hobbs was to receive. Shortly after Hobbs commenced his employment, he was given a non-negotiable Solicitor’s Agreement.  The Solicitor’s Agreement provided for a more restrictive commission rate than what was previously agreed to.  Further, the Solicitor’s Agreement allowed TDI to revise the commission rate at its sole discretion. Hobbs subsequently signed the document as he would otherwise not receive payment. As time passed, Hobbs was not paid the commissions that he believed were owed to him; therefore, he resigned from the company and sued TDI for the outstanding commissions.

The Ontario Court of Appeal considered the enforceability of the Solicitor’s Agreement. The Court of Appeal determined that the agreement did not form part of Hobbs’ employment contract for lack of consideration. As a result, the Court of Appeal ordered TDI to pay Hobbs the commissions he was owed based on the earlier oral agreement.  In reaching this decision, the appellate court reviewed a number of leading authorities on the requirement of consideration in employment contracts and stated:

[32] … [Francis v Canadian Imperial Bank of Commerce] makes it clear the law does not permit employers to present employees with changed terms of employment, threaten to fire them if they do not agree to them, and rely on the continued employment relationships as the consideration for the new terms.

[35] In Techform Products Ltd., Rosenberg J.A. similarly recognized that new consideration is required in order to modify an existing employment contract. He stated at para. 24:

It is also consistent with the principle fundamental to consideration in the context of an employment contract amendment — that in return for the new promise received by the employer something must pass to the employee, beyond that to which the employee is entitled under the original contract. Continued employment represents nothing more of value flowing to the employee than under the original contract.

The Court of Appeal further addressed the power imbalance in employment relationships and the vulnerability of employees in relation to their employers at para. 42:

The requirement of consideration to support an amended agreement is especially            important in the employment context where, generally, there is inequality of         bargaining power between employees and employers. Some employees may enjoy             a measure of bargaining power when negotiating the terms of prospective       employment, but once they        have been hired and are dependent on the remuneration of the new job, they become     more vulnerable.

What do these cases mean for employers?

The above noted decisions clearly stand for the proposition that an amendment to a pre-existing employment contract will not be enforced unless there is an added benefit to both parties. A basic rule of thumb for employers to follow is to have an employee sign a contract that is suitable to the employer before the employee commences his or her employment.  Alternatively, it is critical when introducing new terms to a pre-existing employment contract that employers provide fresh consideration to the employee.  The lack of fresh consideration increases the risk that the modified terms of an employment contract will not be upheld by a court of law.

What would be considered adequate consideration?

There are no cases that outline a specific test to determine what constitutes adequate consideration when an employer modifies the terms of employment.  In Krieser v. Active Chemicals Ltd.[4], Neilson J. provides some guidance as to what would form adequate consideration in the employment context. At para. 35, Neilson J. stated:

I have found, however, that the defendant must show something more than continuation of the plaintiff’s employment on more onerous terms for an uncertain time to establish adequate consideration. Some additional advantage must flow to the plaintiff for agreeing to the new terms. I find that the defendant has failed to establish that here. There is nothing in the terms of the Contract that confers a benefit on the plaintiff. Nor do I see any basis for concluding that signing it provided him with any increased security of employment, either expressly or implicitly. The plaintiff remained a probationary employee under both the Contract and the Act, and could be dismissed with no notice during the first six months of his employment. While the Contract thereafter provided more generous notice provisions than the Act, these were less generous than his common law rights once several years of employment had been completed.

Neilson J. indicated that the consideration must be some ‘additional advantage’ moving to the employee.  Yet, it is unclear what this additional advantage must be.  In the writer’s view, the nature of this advantage would invariably depend on the type of position that is held by an employee.  Some advantages may include an increase of vacation pay, notice requirements, life insurance, severance pay, or health and dental benefits. The sufficiency of consideration is still an open question at this point; however, it is a significant issue that will likely have far reaching implications for employers and workers throughout Canada.


[1] 2002 BCCA 452.

[2] (1996), 21 B.C.L.R. (3d) 157.

[3] (2004), 246 D.L.R. (4th) 43.

[4] 2005 BCSC 1370.

 

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Jennifer MacGregor-Greer
Friday, December 14th, 2012    Posted by Jennifer MacGregor-Greer (posts)

Many entrepreneurs perceive securities laws to apply only to large publicly-listed entities.  However, securities laws apply to every business, and business owners should include securities compliance in their corporate oversight regimes.  For an entity with a limited number of stakeholders, this is not an expensive or particularly onerous endeavour.

Securities law in Canada is regulated provincially.  While many Canadian jurisdictions have harmonized their securities regimes in recent years, there are certain differences across Canada.  The laws that apply to each business (called an “issuer” under securities law, as an issuer of securities) and investor depend primarily on the jurisdiction in which that issuer or investor resides.  While securities laws differ across Canada, we note that there are greater differences for businesses located in the United States, or for those planning to distribute securities to any investors resident in the United States.  This article is based on securities laws applicable in British Columbia.

Under securities law, every issuance of a “security” requires (a) the publication of a prospectus by the issuer, and (b) registration of any person who is in the business of trading the security.  A “security” can be a wide variety of instruments or things, ranging from shares, units and options, to debt instruments and investment contracts – in effect, anything that would result in a person having an interest in the business of the issuer.  The prospectus and registration requirements are meant to protect investors from the risks associated with investment.  However, most small businesses are able to rely upon exemptions from these requirements for much of their corporate lifespan.  For the most part, these exemptions are found in National Instrument 45-106 of the Canadian Securities Administrators, “Prospectus and Registration Exemptions”.

The exemption that most businesses use in their initial stages of growth is called the Private Issuer Exemption.  Issuers that have distributed securities to fewer than 50 persons (not including employees and former employees) and that have not distributed securities of any class to members of the public are generally able to rely upon the Private Issuer Exemption.  Provided that an issuer complies with the detailed provisions of this exemption, including only distributing securities to certain categories of investors, it could use this exemption for a number of years.  In some cases, we have seen closely-held entities use this exemption for their entire corporate existence.  The categories of investors to whom issuers are able to distribute securities under this exemption include directors, officers and employees of the issuer, accredited investors (see the description below), immediate family members of directors and officers of the issuer, close personal friends and close business associates of directors and officers of the issuer, and existing security holders of the issuer.

Issuers who can no longer rely upon the Private Issuer Exemption, whether because they have distributed securities to more than 50 persons or because they wish to distribute securities to persons that are outside the designated categories of investors permitted under the Private Issuer Exemption, may be able to distribute securities in reliance on certain other prospectus and registration exemptions.  The most commonly used exemptions for small businesses are the Accredited Investor Exemption, the Minimum Amount Investment Exemption, the Family, Friends and Business Associates Exemption and the Offering Memorandum Exemption.

The Accredited Investor Exemption focuses on the attributes of the investor rather than the issuer itself.  In effect, the prospectus and registration requirements are considered not to apply to investors who have the financial means to absorb the loss of their entire investment, and the knowledge and experience to assess the risks associated with the investment.  While there are many classes of “accredited investors”, the most commonly used are (a) the class based on net worth, under which the investor, either alone or with their spouse, has net assets of at least $5,000,000, and (b) the class based on net income, under which the investor has a net income before taxes that exceeded $200,000 in each of the two most recent calendar years or whose net income before taxes combined with that of a spouse exceeded $300,000 in each of the two most recent calendar years and who, in either case, reasonably expects to exceed that net income level in the current calendar year.

The Minimum Amount Investment Exemption focuses on the amount of the investor’s financial investment.  Currently, this exemption applies to investors who invest at least $150,000 in securities of the issuer.  Use of this exemption, similar to the Accredited Investor exemption, assumes that a person who has the financial wherewithal to invest at least $150,000 has the financial means to absorb a loss, and the knowledge and experience to assess the risks associated with the investment, and therefore does not require the protection associated with a prospectus.

The Family, Friends and Business Associates Exemption is meant to apply where close personal friends and close business associates of directors and officers of the issuer make an investment, and therefore focusses on the relationship between the investor and the director or officer.  The investor must be able to demonstrate that they have a sufficiently close relationship with the director or officer to be able to properly evaluate the director’s or officer’s capabilities and trustworthiness.  The relationship in each case must be direct.

The Offering Memorandum Exemption gives an issuer access to a very broad range of prospective investors.  However, it does involve producing an offering memorandum in respect of the offered securities, which involves a substantial output of resources.  We do not recommend using this exemption unless an issuer has already exhausted their access to other exemptions and wishes to offer to the public, without becoming a publicly listed issuer.

We caution issuers and investors that most of these exemptions involve making certain filings with the local securities commission.  As well, their use requires a careful review of the issuer’s particular situation and the class of prospective investors who wish to invest.  Each exemption carries with it various requirements that are not addressed in this article, so if you are anticipating issuing securities we recommend speaking with one of our lawyers so we can provide you with appropriate advice.

The prospectus and registration requirements also apply on each occasion that a security is resold, again with certain exceptions.  We recognize that for most small businesses, investors plan to hold their investment for a lengthy period of time.  If this is not the case, investors need to be aware that their ability to transfer securities will depend on factors such as when the securities were first issued, under what exemptions they were issued, and the jurisdictions in which the transferor and transferee reside.

Securities law is complex, and in recent years securities regulators have been placing greater emphasis on compliance, even for those entities that are not publicly listed.  We recommend obtaining legal advice early as to the requirements that will apply to your business.

Please contact Jennifer MacGregor-Greer or Carol Alter Kerfoot for specific advice relating to the distribution of securities by your business.

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Shafik Bhalloo
Wednesday, September 19th, 2012    Posted by Shafik Bhalloo (posts)
Shafik Bhalloo
Shafik Bhalloo has been a partner of Kornfeld LLP since 2000. His practice is focused on labour and employment law, and on commercial and civil litigation. He is also an Adjudicator on the Employment Standards Tribunal and an Adjunct Professor in the Faculty of Business Administration at Simon Fraser University.

 

When a manager is not a manager: Employers beware of liability for overtime or extra pay

                                                                        By Shafik Bhalloo*

 

Section of the British Columbia Employment Standards Act (the “Act”) delineates overtime wage requirements for employees who work over 8 hours per day or 40 hours per week.  It states:

40. (1) An employer must pay an employee who works over 8 hours a day, and is not working under an averaging agreement under section 37,

(a) 1 1/2 times the employee’s regular wage for the time over 8 hours, and

(b) double the employee’s regular wage for any time over 12 hours.

(2) An employer must pay an employee who works over 40 hours a week, and is not working under an averaging agreement under section 37, 1 1/2 times the employee’s regular wage for the time over 40 hours.

(3) For the purpose of calculating weekly overtime under subsection (2), only the first 8 hours worked by an employee in each day are counted, no matter how long the employee works on any day of the week.

However, section 40 of Act does not apply to employees who are “managers” as Section 34(f) of the Employment Standards Regulation (the “Regulation”) specifically excludes managers (and some other categories of employees) from hours of work and overtime requirements.  It states:

 

34. Part 4 of the Act does not apply to any of the following:

(f) a manager;

Having said this, simply calling an employee a “manager” will not exempt her from overtime compensation under Section 40 of the Act.  It is not the job title but the job duties that determine whether or not the employee is exempt from overtime compensation under the Act.  Section 1(1) of the Regulation provides an exclusive definition of  “manager” as follows:

1. (1) “manager” means

(a) a person whose principal employment responsibilities consist of supervising or directing, or both supervising and directing, human or other resources, or

(b) a person employed in an executive capacity;

In 429485 B.C. Limited Operating Amelia Street Bistro (“Amelia Street Bistro”)[1] the Employment Standards Tribunal considered several previous cases of the Tribunal on the definition of “manager” and concluded as follows:

The task of determining if a person is a manager must address the definition of manager in the Regulation….Typically, a manager has a power of independent action, autonomy and discretion; he or she has the authority to make final decisions, not simply recommendations, relating to supervising and directing employees or to the conduct of the business.  Making final judgments about such matters as hiring, firing, disciplining, authorizing overtime, time off or leaves of absence, calling employees in to work or laying them off, altering work processes, establishing or altering work schedules and training employees is typical of the responsibility and discretion accorded a manager.  We do not say that the employee must have a responsibility and discretion about all of these matters.  It is a question of degree, keeping in mind the object is to reach a conclusion about whether the employee has and is exercising a power and authority typical of a manager.  It is not sufficient simply to say a person has that authority.  It must be shown to have been exercised by that person.

If you are an employee hired in a “managerial” or “executive” position, you should examine your day-to-day duties and determine whether your primary job duties are supervisory or managerial  in character – do you have authority to make final decisions?  Do you supervise and direct employees?  Do you hire and fire employees?  Do you discipline employees?  Do you have discretion and authority to independently set or change employees’ schedules and make decisions to call in or layoff employees?  If your primary job duties includes some or most of these tasks, you may be a manager but if your primary duties do not include these tasks or if you rarely or irregularly perform these tasks, you may not be a manager within the meaning of the Regulation.  In such case, you may be entitled to overtime pay for any extra hours you work over and above 8 in a day and 40 in a week.

If, however, you satisfy the definition of “manager” in the Regulation, is your employer exempt from paying you any additonal pay for extra hours worked?  The Tribunal, in a few cases, has indicated that some managers can claim pay at “straight time” rates for extra hours worked[2] – that is, beyond 8 hours daily or beyond 40 hours weekly, if working those extra hours was not an agreed term of your employment relationship or included in your base pay.

If you are an employer desiring to curtail your exposure to pay extra to your manager for any additional hours of work, then you should consider have a binding employment contract in place that specifically addresses this issue.  More particularly, you want an employment contract that clearly specifies that the manager is expected to work in excess of 8 hours in a day and 40 hours in a week and that the manager’s base salary includes or is intended as compensation for all hours worked.


[1] BC EST #D479/97

[2] Re Fort St. John, BC EST # D265/03

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Posted by Shafik Bhalloo (posts) | Filed under Labour & Employment, Other | ....
Shafik Bhalloo
Monday, September 10th, 2012    Posted by Shafik Bhalloo (posts)
Shafik Bhalloo
Shafik Bhalloo has been a partner of Kornfeld LLP since 2000. His practice is focused on labour and employment law, and on commercial and civil litigation. He is also an Adjudicator on the Employment Standards Tribunal and an Adjunct Professor in the Faculty of Business Administration at Simon Fraser University.

 

By Shafik Bhalloo*

Like the mythical sasquatch, the Loch Ness monster, or the abominable snowman, most of us have heard of it and some of us have read about it, but never have we seen the remedy of reinstatement in section 79(2)(b) of the Employment Standards Act (the “Act”) actually occur.

Section 79(2)(b) provides:

79

(2) In addition to subsection (1), if satisfied that an employer has contravened a requirement of section 8 or 83 or Part 6, the director may require the employer to do one or more of the following:

(b) reinstate a person in employment and pay the person any wages lost because of the contravention

Colloquially described as a “make whole” remedy, section 79(2)(b) gives the Director of Employment Standards (the “Director”) the discretion to order an employer to reinstate an employee and pay he or she any lost wages, if the employer has contravened one or more of sections 8 (employment-related misrepresentations to the employee), 83 (termination of employment in retaliation for an employee’s enforcement or an inquiry as to his rights under the Act), or Part 6 of the Act (refusal to allow an employee to return to work following a statutorily mandated pregnancy leave[1], parental leave, family responsibility leave, compassionate care leave, reservists’ leave,  bereavement leave or jury duty).

 While reinstatement is not a remedy that is ordinarily available at common law, it is more commonly sought and awarded in a union context, where an employee grieves an unjust dismissal. This remedy, undoubtedly a powerful one if awarded, enables the employee to make up not only their past wage loss and to continue to receive the economic benefits of their employment in the future, but also restores any psychological benefits they derive from their job.  Therefore, the transference of the remedy of reinstatement from the union experience to the non-union sector in British Columbia, in the form of a statutory remedy under section 79(2)(b) of the Act, at first glance should be a welcome option for employees in the non-union sector as providing a comparable remedy to reinstatement available to their counterparts in the union sector.

However, in practice, in British Columbia, the statutory remedy of reinstatement has yet to make an appearance in an award by the Director or the Employment Standards Tribunal (the “Tribunal”), although dismissed employees have sought it in several cases. Partly, the absence of this remedy may be attributed to the limited circumstances in which it may be available or can be sought in the non-union sector in British Columbia, namely, it may only arise if the Director is satisfied that one or more of sections 8, 83 and Part 6 of the Act[2] were breached (limitations that do not exist in the union sector). It may also be that in some cases it is impossible or impractical to order reinstatement of the wrongfully discharged employee who otherwise satisfies one or more pre-requisites of the reinstatement remedy in section 79(2)(b) of the Act. Examples of this would include circumstances where the employer ceases operations[3] or the employee has secured alternate employment[4] after filing a complaint or left B.C., and not expressed any interest in being reinstated to their former position[5].

In such cases, there is an alternative “make whole” remedy that can be found under section 79(2)(c) of the Act, i.e. to pay a person compensation instead of reinstating the person’s employmentwhich the Director has been relatively more willing to award.  The Tribunal in Afaga Beauty Service Ltd.[6] delineated a list of non exclusive factors in determining appropriate compensation for loss of employment which included: “length of service with the employer, the time needed to find alternative employment, mitigation, other earnings during the unemployment, projected earnings from previous employment and the like.” While clearly not as extensive and as fulsome a remedy as reinstatement under section 79(2)(b) of the Act, the remedy under section 79(2)(c) seeks, as far as is economically possible, to return the employee to the position he or she would have been in had the employer’s misconduct not occurred. As described by the tribunal in Photogenis Digital Imaging Ltd./PDI Internet Café Incorporated[7], the compensation awarded under this section  “must be commensurate, in an economic sense, with reinstatement”.

Having said this, in my view, the apparent reticence of the Director in declining to grant the remedy of reinstatement cannot be fully attributed to the rationale offered earlier or the existence of the alternative to the remedy of reinstatement available in section 79(2)(c). If one refers to the Director’s online Interpretation Guidlines Manual (the “Guidlines”) for the Act, published on the website of the Employment Standards Branch[8], the following explanation in relation to the reinstatement remedy in section 79(2)(b) is offered:

Reinstatement is rarely appropriate as the relationship is usually too damaged for reinstatement to be successful. Therefore, to create a “make whole” solution to a contravention of these provisions, the director considers the following

  • wages lost; which may include wages from previous employer or due to missing another employment opportunity
  • recovery of reasonable out-of-pocket expenses caused by the contravention and the search for employment. Out-of-pocket expenses does not include the cost of obtaining legal advice, or of retaining legal counsel.

It would appear that the Director has a somewhat somber perspective on the reinstatement remedy in the Guidelines that favours the alternative in section 79(2)(c)-lost wages sans reinstatement. Admittedly, it is hard to refute that in most, if not all cases, where an employer has dismissed an employee the relationship between the parties is, at some level, bruised or fractured and there is undoubtedly a loss of trust and confidence between the parties and reluctance, whether large or small, by the employer to take the employee back even where a determination has been made that the employee was dismissed under harsh, unjust or unreasonable circumstances, contrary to one or more of sections 8, 83 or Part 6 of the Act.

In the cases considered in preparing for this article, it was difficult to find any one case that stood out as a clear example of a “relationship… too damaged for reinstatement” in contradistinction to the “ordinary” case of a bruised relationship between an employee and their employer who terminated their employment in contravention of the Act.  In a few cases the Tribunal delineated the Director’s reasons for the determination in greater detail offering more insight into why the Director decided against reinstatement such as in Photogenis Digital Imaging Ltd./PDI Internet Café Incorporated[9] where the Tribunal pointed out that the principal of the employer was “angry” or “accusatory” towards the two employees who filed complaints against the employer and berated one of them before terminating the employment of both as a retaliatory measure. However in most other cases the Tribunal simply reports, with little or no explanation, that the Director concluded the “relationship had broken down”[10] or the “employer did not want the employee”[11] or “reinstatement of the employee was not appropriate in this case”[12], and in two cases stating that the Director could have made the employee whole by way of a reinstatement order coupled with an order to recover lost wages[13] but instead ordered compensation in lieu of reinstatement. The lack of sufficient explanation why the reinstatement remedy was not awarded in most cases may very well be because the Tribunal did not find any real analysis or explanation for why the Director opted against the reinstatement remedy in the reasons for the determinations under appeal.

In the writer’s view, to deny the reinstatement remedy (where the employee wants it and has otherwise met the requirements of section 79(2)(b)) only because the employer is reluctant to take back the employee, or does not want the employee, or because there are some bruised feelings between the parties will only serve to reinforce the conclusion that the reinstatement remedy is a fiction and detract from any deterrent value the remedy may have with employers, who otherwise might be inclined to dismiss employees in contravention of the Act (particularly in circumstances contemplated in section 79(2)(b)). Surely the legislators in enacting this very powerful remedy must have envisaged that it would have “teeth.”

Having said this, it would be irresponsible to end this paper without mentioning two empirical studies by academicians on how the remedy of reinstatement has fared in the non-union sector. While not suggesting by any means that either of the studies, methodologically or otherwise, should be uncritically accepted, the findings in both are interesting and contribute to one’s understanding of what could make reinstatement, in the non-union sector, a more attractive remedy. The first is a study of the post-reinstatement experience of non-union federal workers in Quebec conducted in circa 1991 by Professor Trudeau[14] of the Faculty of Law at the Université de Montréal. In his study, Professor Trudeau reported that a survey of non-union employees reinstated under the federal Canada Labour Code (the “Code”) revealed that only 54 percent of the employees returned to work; 67 percent of those believed they were “unjustly” treated by their employer after returning to work; and approximately 38 percent had thereafter resigned from their employment at the time of the study. Professor Trudeau hypothesized that the apparent ineffectiveness of the reinstatement remedy in the non-union sector was due to the lack of union presence to monitor and oversee the employer’s conduct and protect the reinstated employee from harassment and discrimination.

Professor Eden[15] of the School of Public Administration at the University of Victoria conducted a subsequent empirical study to assess the effectiveness of reinstatement of non-union employees under the Code from the perspective of the employer. In her study, written questionnaires were sent to employers whose cases had been decided by an adjudicator under the Code and reinstatement was ordered.  Out of 106 awards between January 1, 1983 and December 31, 1991, she received responses from 37 employers (or about 35 percent). She summarized the responses of the employers as follows:

In summary, out of 37 employer respondents, just over one-half indicated that complainants either did not return to work (12 respondents) or were reemployed for less than three months (7).

Of those who returned to work (25), 14 respondents rated reinstatement unsuccessful. Only seven evaluated as successful. Thus, overall, the remedy of reinstatement appears to have been effective in only 30 percent of the cases.

Professor Eden concluded that her study supported Professor Trudeau’s conclusion that the remedy of reinstatement “has not fulfilled its promise in the non-union sector.” She also concludes, “(t)he presence of a union may be a key variable in the effectiveness of reinstatement as a remedy.”

If, in British Columbia, the Director at all shares the concerns articulated in the conclusions of Professors Trudeau and Eden, and if those concerns are factors influencing him from refraining from employing the reinstatement remedy in section 79(2)(b), then perhaps a statutory presumption in favour of reinstatement in the Act, combined with an enforcement or monitoring mechanism may serve as an equalizer or substitute for the missing watchful eyes of a union in the non-union sector. In this regard, the constructive comments of Professor Eden below are apt and I would argue her recommendations equally apply in context of the reinstatement remedy in the Act:

In the absence of a union, workers ordered reinstated to the workplace would have to be provided with greater support. To some degree, this may be achieved through a follow-up mechanism directed by the governmental agency that administers the statute. For example, the same inspector who tried to resolve the dispute between the parties prior to adjudication could contact the complainant after issuance of the adjudicator’s order to ensure employer compliance with the reinstatement order. Failure to comply on the part of the employer would result in this agency, not the complainant, initiating the procedure for enforcing the remedy…

Having an enforcement mechanism such as that suggested by Professor Eden to monitor and oversee the compliance of the reinstatement remedy after it is given will only add to its effectiveness as a remedy and perhaps bring it out of obscurity in British Columbia in the non-union sector.


[1] In the case of pregnancy and other leaves permitted under Part 6 of the Act, section 54 of the Act additionally imposes on the employer specific duties not to terminate the employee’s employment and to return her to her position at the end of the leave:

54. (1) An employer must give an employee who requests leave under this Part the leave to which the employee is entitled.

      (2) An employer must not, because of an employee’s pregnancy or a leave allowed by this Part,

(a) terminate employment, or

(b) change a condition of employment without the employee’s written consent.

       (3) As soon as the leave ends, the employer must place the employee

(a) in the position the employee held before taking leave under this Part, or

(b) in a comparable position.

 

[2] Re Irina Berezoutskaia, BC EST #D082/08; Jim Pattison Chev-old, A division of Jim Pattison Industries Ltd., BC EST #D643/01; Re Allan Pope, BC EST #D007/05

[3] Wang Wei-Ming also known as Wendy Wang carrying on business as Ming Spa, BC EST #D012/11

[4] VCS Hytek Air-Conditioning Inc., BC EST #D201/98; The Cash Store Inc., BC EST #D087/09

[5] Afaga Beauty Service Ltd., BC EST #D318/97

[6] Ibid.,, p. 5; W.G. McMahon Canada Ltd., BC EST #D386/99

[7] BC EST #D534/02

[8] http://www.labour.gov.bc.ca/esb/igm/esa-part-10/igm-esa-s-79.htm

 

[9] Supra, footnote 7, p. 7.

[10] Quigg Development Corporation, BC EST #RD047/08 Reconsideration of BC EST #D014/08; Rose Miller, Notary Public, BC EST #D062/07

[11] In The Cash Store Inc.[11], supra, footnote 4, it is noteworthy that the Tribunal, in upholding the lost wage award of the Director made to the employee whose employment was terminated for requesting a family responsibility leave pursuant to section 52 of the Act, observed that the Director dismissed reinstatement as a viable remedy not simply because the employee had secured an alternative employment but also because the employer “did not want her back”.

[12] Skyline Estates Ltd. doing business as “Traveller’s Inn”, BC EST #D210/03;  Maltesen Masonry Ltd., BC EST #D070/10

[13] Rite Style Manufacturing Ltd. and M.D.F. Doors Ltd., BC EST #D105/05; Orr Hotel limited and Golden Tree Lumber Inc, Associated Companies pursuant to Section 95 of the Employment Standards Act, operating as Dominion Hotel and Lamplighter Pub, BC EST #D094/01

[14] G. Trudeau, “Is Reinstatement a Suitable Remedy to At-Will Employees?” (1991), 30 Ind. Re. 302

[15] G. Eden, Reinstatement in the Nonunion Sector: An empirical Analysis” (1994), 49 Ind. Re. 87

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Posted by Shafik Bhalloo (posts) | Filed under Labour & Employment, Other | ....