It is a common saying among business law lawyers that a business is either growing or dying: there is no in-between.

Assuming that a business is growing, it will soon extend past what a sole proprietor or several shareholders can do themselves.

Sooner or later, businesses will need employees. You can't create an ant's nest without worker ants.

Historically, this is precisely what happened and what has motivated the development of employment law.

Hundreds of years ago, employment for money was rare. People either sold products or a particular service on an ad hoc basis, or people were enslaved.

Fast forward to 2008: all employment is now contractual and one must not lose sight of the fact that a court may be able to imply an employment contract retroactively upon a set of facts.

Like any contract, there is a reciprocal flow of something of value.

The employee provides services or skills (not "goods") – in other words, they work!

Employment Law GuideThe employer tells the employee what and how to do the work, and gives him/her money in exchange for the work

But the employer – and the employer alone - decides how the work is done and keeps all the profit from the employee’s work.

Money from an employer has several names: wages, salary, pay or remuneration.

Pay can be hourly, annually, weekly or based on production.

Vicarious liability is alive and kicking in the field of employment law:  an employer can be liable for torts committed by their employee "during the course of employment" but not, normally, for torts occurring outside normal employment duties.

The employee is paid a set amount of money and generally need not preoccupy herself with the headaches associated with owning and running the business. She just follows the employer's directions.

The employee gets money in exchange for her work and can use that money to purchase any goods or services unrelated to her work.

The employer, in exchange for his money, gets the services of an individual, performing tasks that the employer defines, and does not have to worry about the employee interfering with ownership or administration issues of the business.

A "perfect" win-win contract; an employment contract.

But freedom of contract hasn’t always worked out that well for the worker.

Traditionally, employers abused employees – hiring them too young, working them too long and prohibiting a group of employees from presenting a common front.

Historically, labour was obtained by slavery, or for money but with no government protection.

Now, in almost all countries, slavery has been abolished.

But still, in too many countries, working conditions remain dismal: children work and adults are underpaid.

As elsewhere in the law, when society seems unable to regulate itself fairly, government intervenes and imposes law which then interferes with the freedom to contract in this area.

And let's be frank: this is not just "another" area of the law. A person's job is often sacred to them. As Justice Dickson of the Supreme Court of Canada said in 1987, in Reference Re Public Service Employee Relations Act:

"Work is one of the most fundamental aspects in a person's life, providing the individual with a means of financial support and, as importantly, a contributory role in society. A person's employment is an essential component of his or her sense of identity, self‑worth and emotional well‑being."

Today, in Canada, the law – both common and statute - affords employees significant protection from employer abuse.

Under the Canadian constitution, labour legislation is primarily a provincial responsibility.

However, the federal government administers labour affairs in certain industries such as federal government employees, extra-provincial or international railways, trucking and shipping as well as air transport, telecommunications and banks.

Employment law includes:

  • The common law against unjust dismissal without adequate notice;
  • Employment standards;
  • Occupational safety;
  • Unions (labour law);
  • Human rights including sexual harassment and pay equity; and
  • Employment insurance.

"EMPLOYEE"

time card Who is an "employee"? Who gets to avail themselves of statutory rights granted to employees?

The alter ego of an employee is the independent contractor or aka consultant or, in French, the entrepreneur.

An independent contractor is not an employee as he/she remains substantially independent from the person hiring them.

Advantages to the employee or employer of an independent contractor as opposed to an employee?

  • Same or better pay as employees.
  • Usually has temporary or short-term work and pays his/her own taxes directly.
  • Generally no additional benefits or job security but flexibility and ongoing novelty – so no company loyalty.
  • Company can reduce its workforce by hiring non-employee "consultants" and minimally liable for torts committed by independent contractors.

To control who receives common law or statute law protection, the Courts have developed a number of tests, none of which are conclusive but all of which will assist in determining if a person is an employee or not.

As with so much of the law, this is an art, not a science.

  • Control – how much control over the person’s work has the "employer" retained or exercised (aka "the control test")?
  • Tools – who owns the tools or equipment required to do the job? If it’s the employer, that tends to suggest an employee-employer relationship.
  • Chance of profit/financial risk – if the "employee" is sharing the employer’s profit, or risks a loss if the company fails, it tends to negate a employee-employer relationship.
  • Organization test – if the work is an "integral" or "essential" part of the business, then "employee" …. or is it just accessory or adjunct thereto? This is the test du jour, now in vogue!

671122 Ontario Ltd. v Sagaz Industries Canada Inc. 2001 2 SCR 983:

"The central question is whether a person who has been engaged to perform the services is performing them as a person in business on his own account."

There appears to be no one test; each case is judged on its facts.

In Wolf v Canada, 2002 4 FC 396 (FCA), Wolf was an aerospace engineer who bounced around from contract to contract, well-versed in the independent contractor/consultant routine.

His contract with Canadair identified him as an independent contractor and consultant and gave him $32/hour and a $190/weekly per diem, vacation and statutory holiday pay. Canadair deducted CPP and taxes.

When reviewing his tax returns, CRA saw the vacation and stat holiday pay and said he was an "employee", thus subject to another tax bracket and disqualified form certain "business expense" deductions. Wolf challenged that determination and the Court agreed with him:

"Non-standard employment such as the one of the appellant, which emphasizes higher profit coupled with higher risk, mobility and independence, indicate, in my view, that the appellant correctly claimed the status of contractor".

But the law in this area is far from clear. The BC Employment Standards Branch brandished, circa 2006, no less than nine different tests to distinguish an employee from an independent contractor!

Another important concept in general employment law are restrictive covenants, which employers impose when they wish to protect themselves when, sooner or later, an employee leaves, to prevent them from joining or becoming the competition.

Restrictive covenants are much disliked by the courts, but not entirely prohibited by them, and they must be contractual (in other words, the employee has to have agreed to it before or during the course of employment).

In Lyons v Multari, 2000 CANLII 16851, Dr. L. hired graduating dentist Dr. M; signs him to a "(restrictive) covenant 3yrs. – 5 miles", as written on a restaurant paper napkin. Eventually, Dr. M quit and opened his own practice less then 4 miles away. Dr. L. asked the Court to shut his former associate down based on the napkin contract, a restrictive covenant. The matter was put before the Ontario Court of Appeal.

 "This appeal calls for striking a proper balance, in a professional employment context, between competing values – on the one side, the sanctity of a clear contract between equals, set against, on the other side, the law’s long-standing aversion to contracts that attempt to restrict competition generally." "Dr. L’s non-competition clause is unenforceable.  His legitimate interest in protecting his own referring dentists and patients could have been protected by a non-solicitation clause.

"Non-solicitation clauses are permissible. In exceptional cases only, non-competition clauses will be upheld."

EMPLOYMENT CONTRACT

If an employment contract is stated to be for a fixed term, the employer need not renew it and the relationship ends with no further obligation to the employer.

But in an excellent example judicial flexibility in accommodating employees, a succession of fixed term contracts has been used to by a Court to decide that the contracts, taken as a whole, was for an indefinite term, thereby engaging liability for a notice period re termination.

For example, the Ontario Court of Appeal decision in Ceccol v Ontario Gymnastics 2001 CanLII 8589.

For 15 years, Ms Ceccol signed 1-year contracts to act as ExDir of the ON Gymnastics. On May 9, 1997, she was told her then 1-year contract would not be renewed when it expired six weeks later. She was offered no severance pay.

"(The) court should be particularly vigilant when an employee works for several years under a series of allegedly fixed term contracts.  Employers should not be able to evade the traditional protections of the ESA and the common law by resorting to the label of ‘fixed term contract’ when the underlying reality of the employment relationship is something quite different, namely, continuous service by the employee for many years coupled with verbal representations and conduct on the part of the employer that clearly signal an indefinite term relationship."

The Court said that a reasonable notice period (or severance pay in lieu of notice) would have been 16 months but reduced it to 12 months because of Ms Ceccol’s failure to properly mitigate her damages (by diligently looking for another job).

TERMINATION & NOTICE PERIOD

The employer has a right to end an employment contract immediately for just cause. This is an implied term of every employment contract.

Every employer has a right to fire an employee for any reason (except as may be prohibited by statute such as human rights or union organizing) or for no reason.

If dismissal is for a "good" reason (just cause or dismissal for cause), no notice is required.

The company downsizing or going out of business is not exempt from giving it’s terminated employees the required notice period.

Policy rationale behind notice period: to bridge the employee financially until she has had a reasonable time to find a new job.

Within employment law is a subfield of law, called unjust or unfair dismissal or wrongful dismissal where lawyers will review the facts of an employee who has been dismissed for an alleged cause, and determine if in fact there was just cause.

Employers are aware of the financial and emotional vulnerability of a fired employee. The cause and terms they impose on a departing employee are often low-balled, as if it were strictly a business decision. Employment law lawyers on both sides - acting for the employer or employees - are alive to this.

Examples of just cause include theft, tardiness or absenteeism, dishonesty, insubordination, incompetence, insolence, conflict of interest, substance abuse, violence or harassment on workplace, and immoral or criminal conduct even if in an employee’s personal life.

In Hyland v Royal Alexandria Hospital, 2000 ABQB 458, Hyland, a Chartered Accountant conspired to avoid (not to "evade", which is illegal), tax laws in the purchase of a personal-use-only car. This fact discovered, he was fired. He sued claiming unjust dismissal. The judge concluded that he had been dismissed for proper cause:

"The Hospital’s auditor, who ensures compliance with matters such as inventory controls and taxation law, has engaged in questionable efforts to avoid payment of GST on his personal vehicle.

"The maintenance of public confidence in financial accountability and regularity were important to the operation of the Hospital.

"I conclude the Hospital had proper cause to summarily dismiss the Plaintiff."

The judges in Canada are quite active in evolving the law towards enhanced employee rights. Except for the most egregious of cases, most clear "just cause" cases now require:

  • more than one instance,
  • warning has been issued, and
  • no condoning on the part of the employer.

Constructive dismissal occurs where an employee is entitled to take the employment contract as terminated as there has been a fundamental change imposed by the employer such as a demotion or assignment to another job with considerably less responsibility.

Constructive dismissal allows employee to leave right away and receive full termination pay.

This is very risky as employers usually oppose this, and they usually have deeper pockets than the employee does, for legal fees. By the time the employee has paid her lawyer, even if she is successful in litigation, there may be little left to celebrate.

In all and any event, the minimal notice period is usually provided in provincial employment standards legislation, to which is supplemented an additional "common law" notice period in the case of more longer-term or senior employees.

The bottom line … BC's ESA notice period as of 2007:

  • After 3 consecutive months of employment … 1 week's wages.
  • After 12 consecutive months, 2 weeks' wages;
  • After 3 consecutive years 3 weeks' wages plus 1 additional week's wages for each additional year of employment, to a maximum of 8 weeks' wages.

A dismissed employee may also be eligible for additional common law severance pay coverage.

How do you calculate it? The Courts constantly discourage generalizing a "one month for each year  of service" rule but then they go out and apply it again and again!

Adjustments are made upwards for age and seniority (the more business-critical the position, the greater the severance).

And if the unjust dismissal is fond by the court to have been heavy-handed, or infected with bad faith, aggrieved Canadians may have access to a bump-up in damages called Wallace damages.

Most (not all), employers feel that since motivation of, and trust in their employees is so essential to their business that rather than give an employee, say, 6 months notice of his lay-off, send him home with the equivalent in money as soon as you give him notice with his 6-months of pay (severance pay).

In most cases, an employer will offer less than what an employee is entitled, but in cash, in exchange for the employee's immediate departure and waiver of any additional severance they might otherwise be entitled to.

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