employment stadards act « Business Law Blog

Enforceability of Restrictive Covenants in the Employment Context

Tuesday, October 23rd, 2012 Posted by Shafik Bhalloo (posts)

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: employment, employment law, employment relationship, employment stadards act, Restrictive covenants

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

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

Wednesday, September 19th, 2012 Posted by Shafik Bhalloo (posts)

Shafik Bhalloo

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

Tags: employee, employment, employment law, employment stadards act, extra pay, labour, manager, overtime

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

Refusal to work during working notice period does not extinguish employee’s right to damages

Friday, March 23rd, 2012 Posted by Shafik Bhalloo (posts)

Shafik Bhalloo

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: damages, damages for wrongfull dismissal, employment relationship, employment stadards act, employment standards act, minimum standards, quit, reasonable notice, resigned, reudiation of contract, termination of employment, working notice

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

Deducting wages from an employee’s paycheque for a past overpayment: What you should know as an employer

Tuesday, October 11th, 2011 Posted by Shafik Bhalloo (posts)

Shafik Bhalloo

If you are an employer and you have made an overpayment to your employee, whether or not that overpayment was “wages” or benefits, can you unilaterally deduct that overpayment from the employee’s wages?

Section 21 of the Employment Standards Act (“ESA”) provides that “an employer must not, directly or indirectly, withhold, deduct or require payment of all or part of an employee’s wages for any purpose”, unless it is permitted or required by any enactment of British Columbia or Canada. “Any purpose” in section 21 includes the scenario where the employer wants to deduct an employee’s wages to recoup overpayments made to an employee.

However, where the deduction is for something that is permitted by an enactment of British Columbia or Canada such as income tax; Employment Insurance premiums or Canada Pension Plan contributions then the employer is allowed to make a deduction without the employee’s consent.

Also, section 22 of the ESA identifies several instances in which the employer may, as a result of the written assignment by the employee, deduct wages from the employee’s wages. Section 22 states:

Assignments

(1) An employer must honour an employee’s written assignment of wages

(a) to a trade union in accordance with the Labour Relations Code,

(b) to a charitable or other organization, or a pension or superannuation or other plan, if the amounts assigned are deductible for income tax purposes under the Income Tax Act (Canada),

(c) to a person to whom the employee is required under a maintenance order, as defined in the Family Maintenance Enforcement Act, to pay maintenance, and

(d) to an insurance company for insurance or medical or dental coverage.

…

(3) An employer must honour an assignment of wages authorized by a collective agreement.

(4) An employer may honour an employee’s written assignment of wages to meet a credit obligation.

How is the employer then to recoup overpayment of wages to an employee? In HEABC V. B.C. Nurses’ Union[1], the Court of Appeal, in upholding an arbitrator’s award declaring that the employer in that case was prohibited from unilaterally recovering overpayment of wages from the wages of its members, stated that the employer:

“ is still able to recover overpayments from employees where that employee agrees to the deductions, or where a statute or collective agreement expressly authorizes the employer’s unilateral action. Where no such agreement or statutory authorization exists, the employer has the option of recovering overpayments in other ways such as pursuing a grievance, or bringing a claim against the employee.”

Therefore, it is advisable that an employer tries to obtain an employee’s express written authorization or consent to deduct the latter’s wages to recoup any overpayment. If the employer is unsuccessful in obtaining the employee’s written authorization, the employer may proceed with a debt claim against the employee in the provincial (small claims) court assuming the overpayment is under $25,000. If the employer is unionized, the employer may be able to pursue the claim by lodging a grievance application.

[1] [2005] BCA 343

Tags: assignments, deduction, employment relationship, employment stadards act, overpayment, unpaid, wages

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

Directors and officers of a corporation: Beware of personal liability under section 96 of the Employment Standards Act

Tuesday, August 23rd, 2011 Posted by Shafik Bhalloo (posts)

Shafik Bhalloo

The Employment Standards Act (“the Act”) delineates the minimum standards that apply in most workplaces in British Columbia. It governs the employment of all employees -casual, probationary or temporary- within provincial jurisdiction, whether employed in a full time or part time capacity.

The Act will not apply where the employee is a person excluded from the provisions of the Act under Employment Standards Regulation (“the Regulation”) such as doctors, lawyers, architects and others whose professions are specifically regulated by provincial legislation. Also other non-professionals, under specific circumstances, are excluded from the application of the Act. These include, but are not limited to, persons engaged in government sponsored work programs, sitters, and newspaper carriers.

The Act also does not apply to employees whose work falls within federal jurisdiction such as banking, defence, interprovincial or international transportation, interprovincial and international shipping, air transport as well as employment with the federal government and crown corporations.

If you are or have been a director or officer of a corporation within provincial jurisdiction, it is important that you understand your potential exposure under section 96 of the Act. Section 96(1) states:

Corporate officer’s liability for unpaid wages

96 (1) A person who was a director or officer of a corporation at the time wages of an employee of the corporation were earned or should have been paid is personally liable for up to 2 months’ unpaid wages for each employee.

Under section 96(1) each director or officer of the corporate employer is liable personally to pay up to a maximum of two months’ wages for each employee, even where more than two months’ wages is owed.

This section only comes into play where the employee successfully lodges a complaint under the Act against her corporate employer for the latter’s failure to pay her wages and the Director of Employment Standards issues a determination against the employer which determination is not satisfied by the employer. In such case, the Director of Employment Standards will employ section 96(1) to issue a determination against one or more directors or officers of the corporate employer to obtain payment of wages owed to the employee by the corporate employer.

The director or officer, to be liable under section 96(1), must have been a director or officer of the corporate employer, at the time the wages were earned or should have been paid by the corporate employer.

It is also important to note that where there is more than one director or officer, nothing in section 96(1) or in any other section of the Act requires the Director of Employment Standards to apportion, pro-rate or divide the liability for wages owed to the employee between the directors or officers[1].

Where the employee is owed more than two months’ wages, the Director of Employment Standards may issue a determination against each director and officer of the corporate employer for two months wages. Just because one of the Director’s or officer’s pays the employee two months’ wages under a section 96 determination does not extinguish or discharge the liability of other directors and officers under their section 96 determinations, since the employee is still owed wages. In such case, since the Director of Employment Standards is not required to collect equally from all directors and officers, he may collect from the other directors or officers only that which is necessary to pay the balance of wages outstanding and no more. For example, if the employee is owed 3 months’ wages, once the director has collected from the first director 2 months’ wages, he may only collect one additional month’s wages from the second director.

What constitutes wages for the purpose of section 96? Wages, under section 96, refers to normal wages including applicable vacation pay. It does not include length of service, termination pay or money payable in relation to individual or group terminations, if the corporation is in receivership.[2]

Directors and officers are also not personally liable for (i) wages of an employee if the corporate employer is subject to action under section 427 of the Bank Act (Canada) or to a proceeding under an insolvency Act[3], (ii) vacation pay that becomes payable to an employee after they cease to hold office[4], or (iii) money that remains in an employee’s time bank after they cease to hold office[5].

Pursuant to section 45 of the Regulation, directors and officers of charities are exempt from the liability created in section 96 of the Act, if they only receive reasonable out-of-pocket expenses and no other remuneration for services performed for the charity. If you are not such a director or officer and section 96 of the Act applies to you, you may want to ask the corporate employer whose Board you are serving on if they have a directors and officers “error and omissions” insurance that sufficiently protects you from such liability. Such enquiry is advisable in advance of getting on the Board of any corporate employer.

[1] Rajinder Brad, a Director or Officer of Skynet Travel Inc., BC EST #D056/07

[2] Section 96(2)(a) of the Act

[3] Section 96(2)(b) of the Act. Section 1 of the Act defines “insolvency Act” to mean “Bankruptcy and Insolvency Act (Canada), the Companies’ Creditors Arrangement Act (Canada) or the Winding-up and Restructuring Act (Canada)”

[4] Section 96(2)(c) of the Act

[5] Section 96(2)(d) of the Act

Tags: Bankruptcy and Insolvency Act, director liability, employee, employment stadards, employment stadards act, insolvency, officer liability, wages

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

Posts Tagged ‘employment stadards act’

Assignments

Corporate officer’s liability for unpaid wages