Posts Tagged ‘employment relationship’

Shafik Bhalloo
Thursday, October 8th, 2015    Posted by Shafik Bhalloo (posts) and Alisha Parmar (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.
Alisha Parmar
Alisha joined Kornfeld LLP as an associate in 2015 after completing her articles with the firm.

When an employee is wrongfully dismissed and the court determines that the employee is entitled to damages in lieu of reasonable notice, the employer will almost always argue that the employee was required to mitigate those damages and failed.  In essence, the employer will allege that the employee failed to take reasonable steps to obtain alternative employment, and that if the employee had taken those steps, then the damages suffered by the employee from wrongful dismissal would have been reduced.  If the court agrees that there was a failure to mitigate, then the employee may be barred from recovering a portion of the damages arising from wrongful dismissal on the basis that those damages could have been prevented by the employee.  Notably, mitigation does not require the employee to accept just any offer of employment in an effort to mitigate – as an example, the court will not find a failure to mitigate where a CEO declines to accept employment as a cashier at a fast-food restaurant, since those two positions are not at all comparable.

An interesting situation arises when the former employer offers the employee re-employment on the same terms.  The question then becomes whether a reasonable person in the employee’s position would have accepted the employer’s offer of re-employment.[1]  In Fredrickson v. Newtech Dental Laboratory Inc., 2015 BCCA 357 (“Fredrickson”), the British Columbia Court of Appeal recently considered that scenario and held the employee did not fail to mitigate by declining an offer of re-employment, where the offer did not fully compensate her for lost income, and where the trust relationship between the employee and employer had deteriorated because of the employer’s actions.

The Decision                                          

In Fredrickson, the plaintiff employee was employed as a dental technician assistant by the defendant company, for a period of eight and a half years.  The plaintiff had a good working relationship with the owner of the defendant company, her “boss”, and they worked closely together in a small office.

In 2011, the plaintiff came under stress resulting from her husband’s illness and her son being involved in an accident, both of which her boss was aware of.  On April 28, 2011, the plaintiff went on a medical leave of absence without informing the defendant that she was doing so.  While the plaintiff was on leave, the defendant disputed her entitlement to take leave and there was some contention that the defendant did not properly respond to the plaintiff’s request to complete Employment Insurance forms. During this time, the plaintiff’s boss surreptitiously recorded two conversations with the plaintiff, which were later used by the defendant at trial.

On July 20, 2011 the plaintiff returned to work after her doctor advised her that she was fit to do so.  On the same day, the defendant informed her that she was laid off because of insufficient work, and provided the plaintiff with a record of employment and a letter of reference.  The plaintiff, through counsel, sent a demand letter to the defendant on September 9, 2011.  In that letter, the plaintiff took the position that she had been wrongfully dismissed when she was laid off in July.

The defendant responded to that letter with an offer of re-employment, with re-employment commencing September 26, 2011, and stated that the plaintiff had an obligation to mitigate her damages by accepting re-employment.  Then, on October 19, 2011, shortly after the plaintiff had commenced her action against the defendant claiming wrongful dismissal, the defendant made a second offer to re-employ the plaintiff including an offer to pay her unpaid wages from July 20, 2011 until September 26, 2011.  Following this, on October 25, November 4, 2011, and April 19, 2012, the defendant made three further offers to re-employ the defendant, including payment of lost wages from July 20, 2011 to September 23, 2011 (the date the first re-employment offer was made), at the same position, with identical salary and benefits, as before.  The plaintiff declined all of these offers.

At trial, the plaintiff was successful at showing that she was wrongfully dismissed, and in fact, the defendant acknowledged that it had dismissed the plaintiff without cause and without reasonable notice in its closing submissions.  Thus, the only issue that remained was whether the plaintiff had failed to mitigate her damages.

The plaintiff tendered evidence that she had applied for nearly 100 jobs, and was not successful obtaining any of those positions, until she eventually secured a position as a bookkeeper in August 2012.  However, the trial judge concluded it would have been reasonable for the plaintiff to accept re-employment by the defendant and that by failing to do so she had failed to mitigate her losses.  As a result, the plaintiff was only awarded damages from the period between July 20, 2011 and September 23, 2011, the date the first offer was made.

The plaintiff appealed, and the Court of Appeal overturned the trial judge’s finding on mitigation.  The Court of Appeal held that the trial judge erred by (1) “failing to accord significance to the incomplete nature of the offer” and by (2) “failing to reflect the intangible element of mutual trust, commensurate with the nature of employment, that flows like a current in the employment relationship”.[2]

On the first point, the Court of Appeal stated that none of the offers made by the defendant were “make whole” offers, in that the offers did not fully compensate the plaintiff for her lost income following July 20, 2011.  The first offer did not include an offer to compensate the plaintiff for the income she had lost between July 20 and September 26, 2011.  The second offer did not compensate the plaintiff for the lost income between September 26, 2011 to October 18, 2011, and each of the other offers left a similar gap in the compensation being offered to the plaintiff.   As such, the “offers coming from Newtech to Ms. Fredrickson never caught up to her loss of income situation”.[3]  The Court of Appeal held the trial judge did not give adequate consideration to the gap in income between the plaintiff’s claim for wrongful dismissal and the defendant’s offers of re-employment, since even the earliest offer for compensation resulted in the plaintiff losing 8% of her annual income.[4] Further, if the plaintiff accepted the offer of re-employment, she would have a very difficult time maintaining a claim for the lost income.[5]

Aside from this, the Court of Appeal found the trial judge erred by not considering the trust relationship between the plaintiff and defendant.  The Court stated that whether or not a reasonable person would accept an offer of re-employment includes an assessment of the obligations of good faith or fidelity on the part of the employer and employee, since mutual trust is an important aspect of the employment relationship.[6]   The Court held that the plaintiff’s trust in the defendant had been eroded by the defendant’s actions in at least two ways.  First, as stated previously, the plaintiff’s boss had secretly recorded conversations with her and then used those conversations at trial.  Second, her boss had engaged in conversation with another employee, in which he agreed that the plaintiff would be too embarrassed to return to work with the defendant.  Interestingly, the Court found that whether or not the plaintiff felt “embarrassed” was inconsequential, and what mattered was that her boss had breached the confidence of the plaintiff by having this conversation, particularly in the context of a small workplace.  The Court found that as a result of the defendant’s actions, “any chance of repairing the employment relationship was irretrievably lost”.  The Court of Appeal’s reasoning suggested that even if the offers had been “make whole” offers, the trial judge’s finding would still not have been upheld because the employee no longer trusted the employer. Thus, the decision illustrates in some situations, it will not matter that re-employment was offered, since the damage has already been done.

[1] Fredrickson at para. 29

[2] Fredrickson at para. 23

[3] Fredrickson at para. 24

[4] Fredrickson at para. 26

[5] Fredrickson at para. 27

[6] Fredrickson at para. 29

Tags: , , , ,

Shafik Bhalloo
Friday, June 26th, 2015    Posted by Shafik Bhalloo (posts) and Alisha Parmar (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.
Alisha Parmar
Alisha joined Kornfeld LLP as an associate in 2015 after completing her articles with the firm.

One of the most significant mistakes a business owner can make when it comes to engaging a worker is classifying that worker incorrectly.  Many business owners are aware that misclassifying an employee as an independent contractor can come with heavy repercussions, including being held liable for the various statutory deductions that should be made for an employee (see our previous post on determining employment status here).

However, fewer business owners seem to be aware that an intermediate category of worker exists between employee and independent contractor.  Where a worker is not an employee but is sufficiently economically dependent on a particular client, that worker may well be a “dependent contractor”.  The key factor to consider whether a worker is a dependent contractor rather than an independent contractor is “exclusivity”.  If the contractor relies heavily on a single client, for a long period of time, this points towards dependent contractor status.[1]

One area in which the distinction between an independent and dependent contractor matters is notice of termination.  Where a worker is a dependent contractor, in contrast to an independent contractor, she will be entitled to reasonable notice of termination.[2]   Where no such notice is given, the business owner may be held liable for damages in lieu of notice.  The Ontario Superior Court’s recent decision in Keenan v. Canac Kitchens (“Keenan”) demonstrates just how significant these damages can be.[3]

In Keenan, the two plaintiff workers had worked for the defendant company for 33 and 26 years respectively.  The defendant was in the business of supplying kitchen cabinets.  For the first eleven and four years, respectively, the plaintiffs were engaged as employees of the defendant.  For part of that time, the plaintiffs were employed as foremen.  This initial period of employment ended when the defendant company decided to enter into a new arrangement with the plaintiffs.  Under this new arrangement, the plaintiffs would be responsible for and had to pay workers who would install the cabinets, and further, were required to provide some of their own equipment.  The defendant also suggested that the plaintiffs incorporate a company through which to provide these services (although the plaintiffs never did) and the plaintiffs were permitted to work for, and did in fact work for, a competing company after the new arrangement commenced.  All of these factors seemed to suggest independent contractor status.

So, when the defendant company started experiencing financial difficulties it gave the plaintiffs very little notice that their services were being terminated.   According to the defendant, under the terms of the new agreement the plaintiffs were not entitled to any notice – let alone reasonable notice.

The court disagreed, finding that the plaintiffs were in fact dependent contractors.  Even though the plaintiffs worked for a competing company and despite all of the other factors that pointed towards independent contractor status, the plaintiffs primarily worked for the defendant and most of the plaintiffs’ revenues were attributable to the defendant.   As a result of this reliance on the defendant, the plaintiffs were entitled to reasonable notice of termination.   Due to the length of service, the court found that the plaintiffs were entitled to 26 months’ notice – equivalent to damages of $124,484.04.

Thus, Keenan emphasizes that whether or not a worker primarily works for a single client is a critical factor when it comes to determining whether a worker is entitled to reasonable notice from that client.  Even if other factors indicate independent contractor status, if the worker is mostly working for one client then termination without reasonable notice may come with a heavy price.

[1] Keenan v. Canac Kitchens, 2015 ONSC 1055 (“Keenan”) at para. 20

[2] Ibid, see also Khan v. All-Can Express Ltd. 2014 BCSC 1429

[3] Keenan, supra note 1

Tags: , , , , , ,

Posted by Shafik Bhalloo (posts) and Alisha Parmar (posts) | Filed under Labour & Employment | ....
Shafik Bhalloo
Tuesday, August 6th, 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.

Limiting Common Law Notice in Employment Contracts

By Shafik Bhalloo and Devin Lucas

It is settled law in Canada that an employer may displace an employee’s right under the common law to reasonable notice of termination by contracting to a lesser notice or severance entitlement. However, the notice or severance period must meet the statutory notice requirements outlined in the applicable provincial employment standards legislation; otherwise it will be of no effect. In British Columbia for instance, Section 4 of the Employment Standards Act provides that the requirements of the Act are minimum requirements and any agreement to waive those requirements has no effect In Machtinger v. HOJ Industries Ltd.[1], where the employer had contracted to give its employees notice or severance below the minimum provided in the Ontario Employment Standards Act, the Supreme Court of Canada declared the provision null and void for all purposes and held that the provision could not be used to interpret the parties’ intentions with respect to notice entitlement upon termination. The Court then went on to conclude that the employees were entitled to reasonable notice because the presumption of reasonable notice was not rebutted. In so concluding, the Court reasoned that such a conclusion was consistent with the legislative intent of the Act which expressly preserved the civil remedies otherwise available to an employee against his or her employer and provided employers an incentive to comply with the minimum statutory provisions of the Act. Not only must the notice provision comply with the minimum applicable employment standards legislation, it must be drafted carefully if the employer is to successfully limit the common law notice. In British Columbia, in McLennan v. Apollo Forest Products Ltd.[2], the province’s Supreme Court considered a wrongful dismissal action brought by Marvin McLennan, a former “bin chaser” at a sawmill.  Part of Mr. McLennan’s employment contract was contained in an employee handbook.  The handbook contained the following termination provision:

The terms and conditions of employment at Apollo Forest Products Ltd. are in accordance with the Employment Standards Act and other legislation of the Province of British Columbia governing the Employer/Employee relationship in the workplace.

Upon being dismissed, Mr. McLennan brought a wrongful dismissal action against his employer arguing that he was entitled to common law severance pay.  In response, the employer argued that the two weeks’ pay that was provided as severance pay pursuant to the Employment Standards Act[3] was adequate.  The B.C. Supreme Court held that the express provisions of the contract did not restrict the notice to the minimum set out in the Employment Standards Act; therefore, making it necessary and appropriate for the Court to determine the reasonable notice period to which the employee was entitled at common law.

McLennan provides support for the proposition that an employment contract, which incorporates provisions of employment standards legislation by reference, will not be sufficient to provide the clarity of intention required to rebut the presumption that reasonable notice in accordance with the common law applies.  In order to do so, the contract would have to go further and clearly limit the reasonable notice period to the applicable statutory legislation.

Recommendations for Employers

It is recommended that employers, when attempting to limit common law notice or severance, do not violate the minimum provincial employment standards legislation. Where the employer is trying to limit the notice to the minimum in the employment standards legislation, it is recommended that the employer draft the limiting clause in very clear and unambiguous terms limiting to such statutory notice or payment in lieu of notice.

[1] [1992] 1 S.C.R. 986

[2] 1993 CarswellBC 1250.

[3] R.S.B.C. 1996, c. 113.

Tags: , , , , , , , ,

Posted by Shafik Bhalloo (posts) | Filed under Labour & Employment | ....
Shafik Bhalloo
Tuesday, October 23rd, 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 Devin Lucas and Shafik Bhalloo

In Globex Foreign Exchange Corporation v. Kelcher[1], three employees, David Kelcher, Mark MacLean, and Luciano Oliverio entered into employment contracts with Globex Foreign Exchange Corporation, a business engaged in foreign currency exchange. In 2003, each employee signed a non-competition and non-solicitation agreement comprising restrictive covenants.  MacLean agreed to the restrictions as part of his initial employment. Both Kelcher and Oliverio agreed to the restrictions during their employment, but did not receive any additional benefits as a result. In March 2005, the three employees were asked to sign more burdensome non-competition and non-solicitation restrictive covenants.  Objecting to these new restrictive covenants, Kelcher resigned and MacLean was fired.  Oliverio signed the new agreement, but resigned shortly thereafter. All three employees joined a rival firm.  In April 2005, Globex filed suit, claiming damages from loss of clients.

The Alberta Court of Queen’s Bench ruled against Globex and held that MacLean had been wrongfully dimissed and was therefore relieved of the restrictive covenants he had consented to.  Further, the Court found that the restrictive covenants were unenforceable as against Kelcher and Oliverio for want of consideration, as the agreements were signed by both employees during the course of their employment, but had received nothing in return.  The Court found that consideration could be present in instances where there is mutual understanding between employer and employee that the employer will not exercise its right to lawfully terminate the employment if the employee agrees to the restrictive covenant; however, the Court found that such mutual understanding did not exist in this case. If such consideration had been present, the Court held that only Kelcher’s non-solicitation clause would have been enforceable because Oliverio’s non-solicitation clause was overly broad and thus unenforceable.

Globex appealed the decision to the Alberta Court of Appeal.  Madam Justice Hunt, writing for the majority, dismissed Globex’s appeal. In so holding, Madam Justice Hunt affirmed the trial court’s ruling that the wrongful dismissal of an employee will render that employee’s restrictive covenants unenforceable. 

Madam Justice Hunt provided a number of legitimate reasons for this longstanding principle of employment law.  The Court said:

Most particularly, to hold otherwise would reward employers for mistreating their employees. For example, an employer could hire a potential competitor, impose a restrictive covenant on the employee, then wrongfully dismiss her a short time later and take advantage of the restrictive covenant. This would be a highly effective, but manifestly unfair, way of reducing competition. A second justification (alluded to by Simon Brown L.J. in Rock Refrigeration) may be that enforcing a restrictive covenant in the face of wrongful termination prima facie negates the consideration (whether continued employment or something else) given by the employer to the employee when she accepted the restrictive covenant.

Madam Justice Hunt also affirmed the trial court’s conclusion that some fresh consideration must be provided by the employer when employees accept restrictive covenants during their employment.

In order for an employer to validly enforce a restrictive covenant against a departing employee, the Alberta Court of Appeal held that three criteria would have to be met.  First, the restrictive covenant has to be reasonable with respect to the geographic scope, length of time and the activity that is restricted.  Second, an employee must be dismissed either with cause or notice or, alternatively, the employee must have resigned. Third, if the employer imposes a more stringent restrictive covenant during the course of employment, the employer must provide fresh consideration such as a raise or bonus. Alternatively, there must be some understanding that the employment would continue as a result of the employee agreeing to the addition or amendment of the restrictive covenant.

This case provides a useful guide with respect to the factors a court will look at when determining the enforceability of restrictive covenants in employment agreements.

[1] 2011 ABCA 240

Tags: , , , ,

Posted by Shafik Bhalloo (posts) | Filed under Corporate Governance, Labour & Employment | ....
Shafik Bhalloo
Friday, March 23rd, 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.

In Raymond Giza v. Sechelt School Bus Service Ltd., Randy Gould[1], the employer, Sechelt School Bus Service Ltd., employed Mr. Giza as a bus driver starting in September 2005. Over the course of the next 5 years, the employer grew disenchanted with Mr. Giza’s conduct and on September 30, 2009, about 5 years into his employment, terminated his employment without cause by giving him 5 weeks’ working notice under the Employment Standards Act. Mr. Giza, who was 61 years old at the time of the termination of his employment, did not take it well and decided not to return to work to serve his working notice. Instead, he commenced a wrongful dismissal action in the BC Supreme Court claiming, inter alia, damages for wrongful dismissal. While the Supreme Court found that 5 weeks’ notice was inadequate, the Court held that when Mr. Giza did not return to work to serve out his working notice, he repudiated the employment agreement and effectively quit and therefore, he was not entitled to damages for wrongful dismissal.

On appeal of the Trial decision by Mr. Giza, the Court of Appeal disagreed with the Trial Court’s conclusion that failing to work during the notice meant that Mr. Giza lost his entitlement to reasonable notice or damages in lieu thereof. Instead, the Court of Appeal reasoned that the employer breached its contract of employment with Mr. Giza when it gave him inadequate notice of termination. Relying on the decision of the Supreme Court of Canada in Hadcock v. Georgia Pacific Securites Corp.[2], the Court of Appeal concluded that Mr. Giza’s right to damages in lieu of reasonable notice had accrued when he received inadequate notice by the employer. While Mr. Giza’s subsequent failure to work during the notice period amounted to a repudiation of his contract of employment and brought it to an end, the Court of Appeal said it did not take way or extinguish Mr. Giza’s cause of action for damages in lieu of notice. However, the Court of Appeal recognized the fairness of taking into account the notice, however inadequate, the employer provided Mr. Giza (during which he could have worked and been paid), and reduced that notice period from the 6 months reasonable notice the Court concluded Mr. Giza would otherwise be entitled to.

In this case the employer apparently mistook the appropriate notice Mr. Giza was entitled to as one delineated in the Employment Standards Act. It is important to note that unless an employer has a properly drafted employment contract restricting the employee’s entitlement to notice upon termination of employment to the minimum statutory notice provided in the Employment Standards Act, the employer will be exposed to a potential claim for common law reasonable notice, which indubitably far exceeds the minimum in the Employment Standards Act.

[1] 2012 BCCA 18

[2] [1999] 3 S.C.R. 425)

Tags: , , , , , , , , , , ,

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