Posts Tagged ‘termination of employment’

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

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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

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Posted by Shafik Bhalloo (posts) and Alisha Parmar (posts) | Filed under Labour & Employment | ....
Alisha Parmar
Monday, April 27th, 2015    Posted by Alisha Parmar (posts) and Shafik Bhalloo (posts)
Alisha Parmar
Alisha joined Kornfeld LLP as an associate in 2015 after completing her articles with the firm.
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.

The Potter Decision – When an Administrative Suspension Goes Too Far

 

By Alisha Parmar and Shafik Bhalloo

 

The Potter Decision – When an Administrative Suspension Goes Too Far

Constructive dismissal is a fascinating concept for employment lawyers, employees, and employers alike.   When an employer is found to have “constructively dismissed” an employee, it means that the law characterizes the employer’s conduct as amounting to dismissal.  Whether or not the employer intended to dismiss the employee, a finding of constructive dismissal can have significant consequences – an offending employer will be liable for damages in lieu of the notice that ought to have been provided to the employee when she was dismissed.   Thus, it seems all the more important that the law governing this legal creature be well-defined, lest an unwitting employer accidently “dismiss” an employee. 

In Potter v. New Brunswick Legal Aid Services Commission, 2015 SCC 10 (“Potter”), the Supreme Court of Canada recently provided an in-depth examination of how the test for constructive dismissal is to be applied and the rules of evidence for each branch of the test.  Further, in the context of administrative suspensions, the decision explicitly recognizes that an employer must provide legitimate business reasons for suspending an employee – otherwise the employer might be constructively dismissing the employee.

As background, an administrative suspension is the broad ability of an employer to temporarily discontinue an employee’s work in a non-union workplace for administrative reasons.[1] This stands in contrast to a suspension for disciplinary reasons.  Further, in this case, the administrative suspension was not for administrative reasons unrelated to the employee’s conduct.  To clarify, the reason for an administrative suspension may be that there is an economic downturn or something else unrelated to the employee – this was not the case in Potter.[2]

The Two Branches of the Legal Test for Constructive Dismissal

Previously, in Farber v. Royal Trust Co., [1997] 1 SCR 846 (“Farber”), the Supreme Court of Canada had held that:

A constructive dismissal occurs where an employer makes a unilateral and fundamental change to a term or condition of the employment contract without providing reasonable notice of that change to the employee.[3]

In Potter the Court further recognized that there are two branches of the test for constructive dismissal.  First, the employee may demonstrate that the employer breached an express or implied term of the contract and then show that the breach was serious enough to constitute constructive dismissal.[4]  The majority explained that a sufficiently serious breach is one which “substantially alters an essential term of the contract” or evinces an intention on the part of the employer to no longer be bound by the contract.[5]  As explained in Farber, this involves asking the question whether a reasonable person in the same situation as the employee would feel that the essential terms of the contract were altered.[6]

Under the second branch, the employee may prove more generally that the employer intended not to be bound by the employment contract, even without showing that there was a breach of a specific term.[7]  This branch takes a retrospective look at whether the employer’s cumulative past acts evince an intention to no longer be bound by the contract.[8]  The question under this branch is whether a reasonable person in the position of the employee, in light of all the circumstances, would conclude that the employer no longer intended to be bound by the contract.[9]

Constructive Dismissal in the context of an Administrative Suspension

Notably, the majority explained that under the first branch in the case of an administrative suspension, the burden shifts to the employer to show that a breach of the employment contract has not occurred.[10]  In order to do this, the employer must show that there were legitimate business reasons for the suspension:

In my view, legitimate business reasons constitute a requirement for a finding that an administrative suspension based on an implied authority to suspend is not wrongful.  Other than in the context of a disciplinary suspension, an employer does not, as a matter of law, have an implied authority to suspend an employee without such reasons.  Legitimate business reasons must always be shown, although the nature or the importance of those reasons will vary with the circumstances of the suspension.[11]

Thus, without legitimate business reasons for the administrative suspension, the employer fails the first part of the test, and the analysis moves onto whether the unauthorized suspension constitutes a substantial breach.  This involves considering whether a reasonable person in the employee’s circumstances would have perceived, inter alia, that the employer was acting in good faith to protect a legitimate business interest, and that the employer’s act had a minimal impact on her in terms of the duration of the suspension.[12]

Application to the Facts

In Potter, the plaintiff employee was appointed the Executive Director of the New Brunswick Legal Aid Services Commission for a seven year term.  About half-way into the term, the plaintiff and the defendant began negotiating for a buyout of the plaintiff’s employment contract.  However, prior to the conclusion of these negotiations, the plaintiff delegated his responsibilities to another director and went on medical leave.

Following this, the defendant unilaterally decided to put a deadline on the buyout negotiations.  If the negotiations were not resolved prior to a certain date, the defendant’s plan was to make a request to the Lieutenant-Governor in Council to revoke the plaintiff’s appointment for cause.  A week before the plaintiff was scheduled to return from medical leave and unbeknownst to the plaintiff, a letter was sent to the Minister of Justice by a representative of the defendant requesting that he be dismissed for cause.  On the same day, the defendant’s solicitor sent the plaintiff’s solicitor a letter which effectively placed the plaintiff on an indefinite administrative suspension without any explanation, but with pay.  Meanwhile, the defendant designated a replacement for the plaintiff.  Two months after being suspended, the plaintiff commenced an action for constructive dismissal.  The defendant contended that by commencing the action the plaintiff had voluntarily resigned, and stopped paying his salary and benefits.

The majority analyzed the facts in Potter using the first branch of the test for constructive dismissal and held that the defendant had in fact constructively dismissed the plaintiff. 

Under the first step, the majority found the defendant did not have express or implied authority to suspend the plaintiff.  The reasons for this finding included the fact that the suspension was of indefinite duration, the defendant had failed to act in good faith, and that it had concealed the intention to have the plaintiff’s employment terminated.[13]  The majority pointed out that as the analysis under this step was conducted from an objective point of view, it was appropriate to consider the letter sent on behalf of the defendant to the Minister of Justice requesting the plaintiff’s dismissal.

The majority further accepted, under the second step, that a reasonable person in the position of the plaintiff would view the breach as substantial, despite the fact the defendant continued to pay the plaintiff.  The defendant had a duty to provide the plaintiff with work, and moreover the suspension was neither reasonable nor justified, since inter alia, no reasons were provided to the plaintiff.[14]  However, the majority emphasized that at this point in the test, it was not appropriate to consider the letter requesting the plaintiff’s dismissal, because it was completely outside the realm of the plaintiff’s knowledge at the time.[15]

Conclusion

There a number of important takeaways in this decision:

  1. Acting within the confines of the employment contract:  Where an action is not expressly authorized by the employment contract, a careful analysis should be conducted as to whether the action is impliedly authorized or consented to by the employee – if not, the employer runs the risk of having constructively dismissed the employee.
  2. Legitimate business reasons:  Employers do not have the implied authority to place an employee on non-disciplinary administrative suspension without legitimate business reasons.  If the employer desires to have this ability, it should be provided in the contract.
  3. Continuing to pay is insufficient:  There is a duty for employers to continue to provide work.  When this duty is interfered with, continuing to pay the employee may be insufficient to show that the employee was not constructively dismissed.


[1] Potter v. New Brunswick Legal Aid Services Commission, 2015 SCC 10 (“Potter”) at para. 68

[2] Ibid at paras. 69 -70

[3] Farber v. Royal Trust Co., [1997] 1 SCR 846 (“Farber”) at para. 34

[4] Potter, supra note 1 at para. 32

[5] Ibid at para. 34 to 35

[6] Ibid at para. 26

[7] Ibid at para. 33

[8] Ibid at para. 33

[9] Ibid at para. 42

[10] Ibid at para. 41

[11] Ibid at para. 98

[12] Ibid at para. 45

[13] Ibid at para. 46

[14] Ibid at para. 81, 99

[15] Ibid at para. 63

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Posted by Alisha Parmar (posts) and Shafik Bhalloo (posts) | Filed under Labour & Employment | ....
Shafik Bhalloo
Tuesday, October 28th, 2014    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.

By Alisha Parmar and Shafik Bhalloo

Introduction

Non-competition clauses are hardly a rarity in employment contracts. The classic non-competition clause seeks to protect the business of an employer by prohibiting a former employee from, generally speaking, competing with the employer once the employment relationship is terminated.

It is well-established that courts are unsympathetic towards non-competition clauses. It has been recognized under the doctrine of restraint of trade that non-competition clauses are contrary to public policy, since they “interfere with individual liberty of action and because the exercise of trade should be encouraged and should be free”.[1] As a result, non-competition clauses are prima facie unenforceable, unless the party trying to enforce the clause is able to demonstrate that it is reasonable. In Aurum Ceramic Dental Laboratories Ltd. v Hwang (“Aurum”), the Court summarized the criteria to be met to find a non-competition clause reasonable:

(a)    the clause protects a legitimate proprietary interest of the employer;

(b)   the restraint is reasonable between the parties in terms of:

  1. temporal length;
  2. spatial area covered;
  3. nature of activities prohibited; and
  4. overall fairness;

(c)    the terms of the restraint are clear, certain and not vague; and

(d)   the restraint is reasonable in terms of the public interest with the onus on the party seeking to strike out the restraint.[2]

Failure to meet any one of the criteria above renders a non-competition clause unenforceable. However, until recently, the state of the law was ambiguous as to whether more nuanced clauses would even be considered non-competition clauses, and therefore whether or not such clauses could avoid the reasonableness test completely. For example, where a clause is not prohibitory per se, but instead imposes some other burden on the employee for competing, it was unclear whether it would be considered a non-competition clause at all. The BC Court of Appeal recently addressed this issue in Rhebergen v Creston Veterinary Clinic Ltd. (“Rhebergen”), and clarified that a creative non-competition clause is still a restraint of trade.[3]

The Facts of Rhebergen

Rhebergen involved an employee, Dr. Stephanie Rhebergen, and her employer, Creston Veterinary Clinic (“CVC”). CVC is exceptionally isolated in that the closest clinics to CVC are 60 miles away and require a trip over the Canada-US border. The majority of CVC’s business is drawn from a handful of dairy farms located in the Creston, British Columbia area.

As a newly licenced veterinarian, Dr. Rhebergen decided to enter into an associate agreement with CVC, wherein she would be paid to work with CVC for three years. The agreement provided that Dr. Rhebergen would be paid $65,000 for each of the three years. It also stated that Dr. Rhebergen would have to pay CVC if, within three years after the agreement was terminated, she set up practice in Creston, or within a 25 mile radius of CVC’s place of business in Creston (the “Clause”). Specifically, Dr. Rhebergen would have to pay $150,000 if her practice was set up within one year of terminating the agreement, $120,000 if her practice was set up within two years, and $90,000 if it was set up within three years.

A little over a year into the agreement, differences arose between Dr. Rhebergen and CVC, and the agreement was terminated. A few months later, Dr. Rhebergen sought a declaration that the Clause was unenforceable, so that she could “set up a mobile dairy veterinary practice in Creston and vicinity”.

Summary of Trial Decision

Mr. Justice Betton gave brief reasons and found that the Clause was in fact a non-competition clause, even though it did not directly prohibit Dr. Rhebergen from competing. The judge then applied the criteria from Aurum and found that the Clause did not meet the test for reasonableness because it was ambiguous, and therefore unenforceable. CVC appealed the decision, including appealing the finding that the Clause constituted a restraint of trade to begin with.

The Court of Appeal

Although the majority of the Court allowed the appeal, the minority and majority only differed on whether the Clause met the criteria for reasonableness. Notably, the majority of the Court of Appeal endorsed Mr. Justice Lowry’s reasoning that the Clause was indeed a non-competition clause.

The decision of Mr. Justice Lowry is illuminating, as it includes an extensive review of the English and Canadian authorities regarding whether a clause is a restraint of trade or not. In reviewing the jurisprudence, Mr. Justice Lowry commented that two strands of authority have been established by modern jurisprudence: the “formalist” approach and the “functionalist” approach. The formalist approach was relied on by CVC to argue that because the Clause does not prohibit Dr. Rhebergen from practicing outright, it cannot be a non-competition clause.

Mr. Justice Lowry noted that this approach requires a clause to be structured as a prohibition in order to constitute a restraint of trade. Under this view, clauses that simply impose a burden on the employee cannot be non-competition clauses. This may be counterintuitive, as “mere disincentives to post-employment competition are not sufficient to trigger the doctrine, even if those disincentives operate as effectively at dissuading competitive conduct and participation in the marketplace as a prohibition”.[4] In conducting a review of the various authorities, Mr. Justice Lowry noted that the jurisprudence in Ontario favours the formalist approach.

The functionalist approach, on the other hand, asks whether “the clause at issue attempts to, or effectively does, restrain trade, in which case it will be captured by the doctrine and subjected to reasonableness scrutiny”.[5] Mr. Justice Lowry noted that the functionalist approach has been widely accepted in English law, and that it is clear that a strict prohibition is not required for the doctrine of restraint of trade to apply. Mr. Justice Lowry then went on to determine that the functionalist approach is the preferred approach:

In my view, the functionalist approach established in English law is to be preferred as the legal basis for determining whether clauses that burden employees with financial consequences, whether by payment or forfeiture, they would not otherwise have for engaging in post-employment competition constitute a restraint of trade. In the words of Lord Wilberforce, it is a matter of the effect of the clause in practice over its form.[6]

In applying this reasoning to the Clause, Mr. Justice Lowry found that it was a non-competition clause because “it compromises the opportunity to compete with the clinic Dr. Rhebergen would otherwise have”.[7] The majority agreed with Mr. Justice Lowry’s finding that the Clause was a non-competition clause, and the Court of Appeal unanimously accepted that the functionalist approach governs in British Columbia.

Comments

Although the Clause in Rhebergen was ultimately allowed to stand by the majority, the decision and the unequivocal adoption of the functionalist approach has implications for employers.

For one, the BC Court of Appeal has now made it clear that it will be the effect and not the form of the clause which will be determinative. Employers intending to restrain the post-employment activities of their employees will not be able to disguise the proverbial wolf in sheep’s clothing – a non-competition clause by any other name will still be unenforceable if it is unreasonable.

A second possible effect of Rhebergen is that the functionalist approach will capture a larger range of restrictive clauses. Recall that the test under the functionalist approach captures even those clauses that “attempt to” restrain trade. Although only time will tell exactly what type of clause this will apply to, proactive employers will want to think carefully about and exercise caution in imposing post-employment burdens on employees, lest they be deemed non-competition clauses.


[1] Shafron v KRG Insurance Brokers (Western) Inc. 2009 SCC 6 at para 6

[2] Aurum Ceramic Dental Laboratories Ltd. v Hwang (1998) 77 A.C.W.S. (3d) 161 (BC SC) (“Aurum”) at para 11

[3] Rhebergen v Creston Veterinary Clinic Ltd., 2014 BCCA 97 (“Rhebergen”)

[4] Ibid, at para 29

[5] Ibid

[6] Ibid, at para 42

[7] Ibid, at para 43

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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.

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