Category: Employment Contracts & Policies

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Dispute Resolution Employment Contracts & Policies Mediation & Arbitration

Are Arbitration Clauses Valid in Employment Contracts?

It is important for both employees and employers to consider the employment agreement terms carefully. Some employment contracts may specify terms regarding pay, hours, vacation, leave, termination, and even arbitration. For instance, the employee and employer may agree to pursue arbitration before taking the matter to court. However, in recent cases, the courts have had to decide whether certain arbitration clauses are valid in employment contracts. This is because employment contracts are considered a special form of contract, given the unequal bargaining power between an employer and employee, which is often weighted in favour of the employer, who primarily decides the terms of the contract. 

In this post, we will discuss the role of arbitration clauses in employment contracts, including situations where they may be invalid. For example, we will discuss a recent case, Nohdomi v. Callidus Capital Corporation, 2023 ONSC 4469, in which the court found that the arbitration clause in the employment contract was invalid, as it prevented the employee from accessing lower-cost dispute resolution through the court system rather than arbitration. This post will provide key takeaways for employees and employers to understand their rights and obligations if the employment agreement contains an arbitration clause. 

What is an arbitration clause in an employment contract?

An employment contract may contain an arbitration clause specifying that the employer and employee will pursue arbitration to resolve disputes before court proceedings. In some cases, the clause may specify that it is mandatory to proceed with arbitration first and how the arbitration will be conducted, such as the location and logistics. The clause may even specify which jurisdiction will apply, which may not be local to the employee if they work for a global company. 

However, it is important to note that an arbitration clause could be invalid even if the contract specifies that arbitration is a necessary step in the process. This will depend on the facts of the case, which are discussed in detail below. 

What are the rules surrounding an arbitration for an employment case?

If an arbitration clause in an employment contract is upheld, the Ontario Arbitration Act may apply. Under section 7 of the Arbitration Act, the court can stay (i.e., pause) a court proceeding with respect to a dispute that should have been submitted to arbitration, according to the arbitration clause in an employment contract. However, the court can refuse to pause the court proceeding if the arbitration clause is invalid. 

When would an arbitration clause be invalid in an employment contract?

It is possible that an arbitration clause is invalid and, therefore, not applicable to an employment contract. It is important to understand when an arbitration clause may be invalid, as it can affect the employee’s rights, the employer’s obligations, and the procedure for resolving a dispute. 

An arbitration clause in an employment contract can be invalid if it contracts out of the processes and rights protected in the Employment Standards Act. Generally, employees can make a complaint under the Employment Standards Act if their employer has not been following the minimum standards set out in the ESA. The Ministry of Labour can begin an investigative process concerning a potential breach of an employment standard. The ability to file the complaint itself is also an employment standard, which could be breached if the parties are required to resolve matters through arbitration, according to the employment contract. The employee and employer must participate in the investigative process if a complaint is made. In addition, the employer must participate for the employee’s benefit, which recognizes that the ESA is meant to protect an employee’s minimum standards. 

The arbitration clause can also be invalid if the required costs to participate are too high, which would prevent an employee from engaging in the process. Other accessibility considerations are also important, such as if the arbitration would be held in a different country, especially for global companies. As a result, the employee may never have a real opportunity to address the dispute, and if it were left to the arbitrator, the employee may never be able even to challenge the validity of the arbitration clause.

Additionally, an arbitration clause could be invalidated if it is unconscionable. This means that if the contract is significantly unfair due to unequal bargaining power, it may be invalid. In particular, this is common in employment contracts, where the employer often has more bargaining power to decide the terms of the agreement. This principle is meant to protect vulnerable parties, such as employees. 

To find that a contract term is unconscionable, the court will need to determine that two elements apply:

  1. Inequality of bargaining power between the parties; and
  2. An improvident bargain.

Generally, there is unequal bargaining power in favour of the employer, and unfairness of the provision will depend on the particular terms being disputed in the contract. An improvident bargain results from the inequality of bargaining power and unfairly disadvantages the party with less bargaining power. In the context of an arbitration clause in an employment contract, the clause may be unconscionable if it creates significant barriers to accessing the arbitration process despite being mandatory. 

Recent Ontario Case Finds Invalid Arbitration Clause in Employment Contract 

In a recent case, Nohdomi, the court found that the arbitration clause in an employment contract was invalid. As a result, the employee was to continue their court proceeding, which was not paused so that the parties could attend arbitration. 

In this case, the parties had an employment contract with a clause that required them to resolve a dispute through arbitration before proceeding to court. However, the court decided this clause was invalid because it essentially contracted out of the ESA. If the arbitration clause were followed, the employee would be deprived of their right to have the matter investigated by an Employment Standards Officer. The court also found that it was irrelevant whether the employee had filed a complaint under the ESA because the employee also had the option to begin a civil proceeding instead of going through the complaint process. 

The employer claimed that the arbitration clause should be upheld because they did not provide for a lesser benefit than provided in the ESA. The court disagreed with this, as the employee was required to pay $7,500 to arbitrate the matter, according to the contract, which did not give him a greater benefit than the complaint process, which did not require any costs to start. 

Overall, the arbitration provision was invalid, and the employee was not required to arbitrate the matter before starting a court proceeding against his former employer. 

Contact Haynes Law Firm in Toronto for Advice on Employment Contracts and Mediation & Arbitration Services

Employers and employees should carefully consider the terms of the employment contract, as some clauses, like an arbitration clause, may be invalid. Our experienced employment law legal team at Haynes Law Firm in Toronto can assist you with disputes concerning employment contracts and employment standards. Our goal is to ensure that employees understand their rights and receive maximum compensation. Haynes Law Firm also assists employers in avoiding liabilities that may arise. We are dedicated to finding the best resolution for you.

To book a consultation, please contact us online or by phone at 416-593-2731.

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Employment Contracts & Policies

Do Employees Owe A Fiduciary Duty to Their Employer?

Both employees and employers owe each other specific duties during the employment relationship. The employment relationship is generally sustainable with some degree of trust and loyalty. While employers have a duty to accommodate certain disabilities, for example, employees also owe specific duties to their employer, including duties of loyalty, fidelity, and good faith, or even a fiduciary duty with a higher standard. The employment contract may imply these duties even if they are not explicitly laid out. However, it can sometimes be difficult to define when there has been a breach in their duties. 

In this post, we will discuss what duties an employee owes to their employer. To clarify further, we will explain when their duties would be breached, including examining a case example, Mann Engineering Ltd. v. Desai, 2021 ONSC 7580. This post will provide important insights into an employee’s duties to their employer, which will assist both employees and employers understand their obligations to each other, even if they are not explicitly defined in the employment contract. 

What duties do employees owe to their employer?

Even if not specified in their employment contract, employees owe their employer an implied duty of good faith loyalty and to maintain confidential information. To fulfill these duties, the employee is expected to refrain from competing with the employer, directly or indirectly, during the employment relationship. This includes the duty not to disclose any trade secrets or confidential information. 

Employees are expected not to disclose confidential information even after the employment relationship ends. However, it is important to note that confidential information does not include the general skills and knowledge that the employee gains during the employment relationship with the employer. This would include skills and knowledge that the employee committed to memory rather than skills or knowledge based on the employer’s documentation. For example, if employees leave their role with company documents, digital files, or solitary customer lists, they may be breaching their confidentiality requirements.

Employees must also make sure that they are not competing, directly or indirectly, with their employer. For example, if an employee solicits business from the employer’s clients or business partners while they are still working for the employer, there may be a breach of the employee’s duty of loyalty. Generally, after the employment relationship ends, the employee can become a competitor of their former employer, including setting up a business in the same line of work. The employee can also bring the knowledge and skills they gained from working with the former employer to apply to the new business. After the employment relationship has ended, the employee can also solicit the former employer’s clients as long as this information does not come from the former employer’s documentation, like a customer list. However, there may be non-competition clauses in the employment agreement to limit when the employee can act as a competitor. Depending on the circumstances, these clauses may not be enforceable based on new Ontario legislation.  

Depending on their role and industry, some employees may owe a fiduciary duty to their employer, which involves a higher standard and expectations on the employee to act in their employer’s interests and protect confidential information. To find that the employee owed the employer a fiduciary duty, the employee must have had the power and ability to direct and guide the company’s affairs. The employee must have been in a position to exert or exercise independent power or discretion over the employer’s business.

There are six factors to determine if an employee may have a fiduciary obligation towards their employer:

  1. What were the employee’s job duties with the former employer?
  2. What extent or frequency of contact did the employee have with the employer’s customers or suppliers during their role?
  3. Did the employee act as a primary contact for customers and/or suppliers?
  4. What was the employee’s extent of responsibility over sales and company revenue?
  5. To what extent did the employee have access to and use or otherwise have knowledge of the former employer’s customers, their accounts, pricing practices, and pricing of products and services?
  6. To what extent was the former employee’s information regarding customers, suppliers, pricing, etc. confidential?

When would an employee’s fiduciary duty to their employer be breached?

To illustrate how an employee may breach their fiduciary duty towards their employer, we will consider the Mann case. In this case, the plaintiff was the employer in the business of providing HVAC services. The action concerned several former employees, and the employer claimed that they had breached their fiduciary duties. 

The company’s former vice president had started his own business in the same line of work after he left his role with his former employer. His role involved day-to-day control over the business. Other employees left the plaintiff’s company to join the defendant’s company in 2010. The former employer claimed that two of these employees breached their fiduciary duty and implied duty of loyalty to the company. 

Overall, the court found that neither employee at issue was in a fiduciary position. In particular, they were not part of the management team. They also did not manage customer relationships, nor sales and revenue. Based on the descriptions of their job duties in their employment agreements, they did not have any broad powers of discretion that would allow them to make decisions to affect the company significantly on their own. They were not authorized to alter any pricing set by the employer. Therefore, neither employee had breached fiduciary duty.

However, The court found that one of the employees had breached his duty of loyalty towards the former employer. The employee had an implied duty of good faith and loyalty towards the former employer, which included a duty not to compete with the employer, directly or indirectly, during the employment relationship. 

One of the employees was found to have breached his implied duties of loyalty and good faith, as he was working for a competitor while still employed by his former employer. There was evidence that he was preparing a proposal to a customer on behalf of the new employer. This employee also took several contracts, passwords, and a proposal before he left and forwarded these documents to his email address without adequately explaining why this was required beyond assisting the new employer. 

The court ultimately found that the employee’s actions breached his duty of loyalty to his former employer despite not owing a fiduciary duty. 

Toronto Employment Lawyers Advising On Employee’s Duty To Loyalty And  Employment Agreements

Generally, employees owe their employer a duty of loyalty as an implied term of the employment agreement. This involves ensuring they are not working for a competitor or soliciting the employer’s customers during employment. As this will depend on the specific circumstances of your case, our experienced employment law legal team at Haynes Law Firm in Toronto can assist you with issues that arise from employment contracts. Our goal is to ensure that employees understand their rights and obligations under the employment contract. Haynes Law Firm also assists employers in avoiding liabilities that may arise from employment contracts and policies that do not adequately meet legislative standards. We are dedicated to finding the best resolution for you.

To book a consultation, please contact us online or by phone at 416-593-2731.

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Employment Contracts & Policies Wrongful Dismissal

What Happens When An Employee Cannot Return to Work?

In some cases, employees may face medical conditions, illness, or injury requiring a leave of absence. These employees may be eligible for short-term or long-term benefits based on their insurance plan. However, issues may arise when it is unclear when the employee can return, if at all. An employee’s employment contract may be terminated if he or she can no longer work for the employer in any capacity. When an employment contract is frustrated, the employee can no longer perform the duties set out in the original contract. This would highly depend on the facts of the case, as illness itself is insufficient to find that an employment contract is frustrated. 

This post will discuss what can happen when an employee cannot return to work. We will discuss the factors determining if an employee’s leave may lead to a frustrated employment contract. In particular, we will examine a case example, Nagpal v. IBM Canada Ltd., 2019 ONSC 4547, in which the court found that the employment contract was not frustrated despite the employee’s leave of absence due to illness. This post will provide key takeaways for employees seeking to understand their rights, given a leave of absence for a medical condition, illness, or injury, and for employers seeking insights on addressing issues arising from an employee’s extended leave of absence.

Short-Term or Long-Term Benefits May Be Available For Employees Facing Illness or Injury 

Employees may be entitled to short-term or long-term benefits under their company’s insurance policy, depending on the employment contract. The policy typically sets out criteria for when an employee is entitled to these short-term or long-term benefits under the plan and what they would receive. For example, the benefits may cover some or all of the employee’s salary during the policy’s application, as was the case with Nagpal, which will be discussed further below. Furthermore, the employee will typically need to provide medical evidence of their inability to work due to illness or injury. 

A common scenario is for an employee to receive short-term or long-term benefits under an insurance provider while on a leave of absence. However, suppose the leave of absence is lengthy, and there is no foreseeable return to work. In that case, there may be frustration with the employment contract, meaning that the contract’s original terms can no longer be performed, and the contract is invalidated.

Overview of Frustration of Contract – When the Original Contract Can No Longer Be Performed 

Frustration of contract means that the original contract can no longer be performed, and it, therefore, cannot be upheld. This principle can also apply to employment contracts, and a common circumstance is when an employee cannot return to work for the foreseeable future.

However, frustration of contract should be understood carefully and analyzed based on the case’s specific facts because if an employee was terminated on this basis, there may be a wrongful dismissal case if the contract was found not to be frustrated at all.

When Is An Employment Contract Frustrated Due To An Employee’s Leave Of Absence?

An employment contract may be frustrating if the employee is not likely to return to work within a reasonable time. If an employer claims that the employment contract was frustrated by an employee’s illness or incapacity, this would only be successful given the context. In particular, an employee’s illness or incapacity would only frustrate the contract if it was likely to continue for such a period of time that the employee would never be able to perform the intended duties set out in the original contract. An employment contract could also be frustrated if it would be unreasonable for an employer to wait any longer for the employee’s recovery and return to work. In its analysis, the court must look at the connection between the term of incapacity or absence, the duration of the contract, and the nature of the employee’s duties.

In some cases, if the employer provides arrangements for long-term disability plans, this may suggest that the employer has a tolerance for long absences due to illness. In these cases, a longer absence may be required to find that the employment contract was frustrated. 

These considerations will be illustrated in the Nagpal case below, in which the court found that the employment contract was not frustrated due to the employee’s medical leave.

Employer Must Prove Employee Cannot Return To Work Within Reasonable Time

In Nagpal, by the time of the trial, the employee had worked for the employer for 23 years. He had received positive performance reviews until 2013 when he began his new leadership role and faced challenges with a difficult employee. He claimed that he was experiencing severe stress and mental health challenges during this time and raised this with management.

By March 2013, the employee called in sick with a recommendation from his doctor to take six weeks off. The employer referred him to the company’s insurance provider for short-term disability benefits. The plan set out that he would be compensated fully for his salary for the first 26 weeks of leave. He was required to provide evidence of his illness or injury that would prevent him from performing his essential duties. Under the plan, if the benefits are denied, the employee can choose to return to work or appeal the decision and take an unpaid leave of absence until the appeal is concluded. In this case, if the employee did not appeal the decision within one month of the start of unpaid leave, he was expected to return to work immediately, or it could be assumed that he had resigned. 

The employee provided evidence from his psychiatrist and psychologist, who said that he struggled to cope with stress, experienced cognitive impairment, and limited energy for an unknown duration. The doctors did not recommend that he return to work immediately. However, by July 2013, the employee was informed that his short-term disability benefits would be terminated. He did not appeal the decision, and the employer advised that this would mean that he was resigning from his position. The employee’s position remained that he required a leave of absence, as recommended by his doctors, and he was not prepared to return to work then.

In this case, the court found that the employer had not provided or sought out evidence that the employee could not return to work within a reasonable time. The employer could not rely on the fact that the employee could not work several years later, as this was not known until after the termination. Furthermore, the employer’s benefits plan included long-term benefits, suggesting that a longer absence period was required to find an employment contract would be frustrating. There was also no evidence that the employee’s absence had negatively impacted the business. The employer also made no efforts to inquire further and gather more information on the employee’s illness and the duration of his leave. Finally, when the employee was terminated, there was little evidence that the illness was permanent or long-term. As a result, the employee’s leave did not frustrate the contract. 

As the contract was not frustrated, the employee was wrongfully dismissed and entitled to damages from the employer. 

Contact Haynes Law Firm in Toronto for Advice on Termination and Wrongful Dismissal Claims

Our experienced employment law legal team at Haynes Law Firm in Toronto can assist you with issues that arise from termination. For employees, our goal is to ensure that they understand their rights and receive maximum compensation in wrongful dismissal cases. Haynes Law Firm also assists employers in avoiding liabilities that may arise from terminations that are not permitted by the legislation. We are dedicated to finding the best resolution for you.To book a consultation, please contact us online or by phone at 416-593-2731.

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Employment Contracts & Policies

Employer Liable For Punitive Damages For Failing to Pay Out Employee

Employee compensation is a fundamental aspect of employment law, both during and after employment. Employers must properly pay out any wages, salaries, commissions, etc., validly owed to the employee. Employers cannot knowingly refuse to pay out their employees, as it would likely be considered a breach of the employment contract. This can lead to significant punitive damages, as seen in Giacomodonato v. PearTree Securities Inc., 2023 ONSC 3197.

In this post, we will discuss the importance of carefully considering the terms of the employment agreement as it relates to termination. In particular, it may involve terms for paying out employees that an employer is obligated to fulfill. We will also discuss circumstances where a court may order punitive damages, which are often unavailable. We will also examine the Giacomodonato case, in which the court ordered the employer to pay $10,000 in punitive damages for knowingly failing to pay out the employee. 

This post will provide key takeaways for employers and employees where there may be a termination and amounts owing to the employee. 

Carefully Consider the Terms of the Employment Agreement For Termination

The termination clause is one of the most important parts of an employment agreement. It is important to note that employers cannot contract outside of the minimum employment law standards set by legislation. In particular, upon termination, the employee must at least receive the minimum compensation set out in the Employment Standards Act. In some cases, if a termination clause is too broad or ambiguous, the termination clause may be invalid and, therefore, unenforceable. Due to this, it is important to consider the termination clause carefully.

Under the employment contract, the employee may also be entitled to compensation beyond their salary, such as commission, bonuses, or overtime pay. These forms of compensation are usually set out in the employment contract, and it is important to have clear terms on when these entitlements are available and how they are calculated. If there are any changes to the bonus or commission structure, it is often helpful to have this set out in writing in case of any dispute. If the matter moves to court, the judge will look to the employment contract terms to make its determination. 

Compensation During Notice Period 

Employees are entitled to a notice period or pay in lieu when they are terminated. During the notice period, employees may be entitled to compensation other than salary, such as benefits, commissions, or bonuses. Under the Employment Standards Act, employees are entitled to stay on their employer’s benefits plan during notice. Benefits can include medical and dental, disability coverage, pension and RRSP contributions, life insurance, vacation pay and more. If the employee’s plan is cancelled before the end of their notice period, then the employer will need to cover the cost based on the employee’s duration of entitlement. 

Employees may be entitled to other compensation, such as bonuses and commissions unless the employment contract terms exclude them. 

Also, depending on the employment contract, the employee may be entitled to additional severance pay beyond the reasonable notice period if they meet the criteria set out in the contract. 

When Are Punitive Damages Available For Wrongful Dismissal?

Punitive damages are only available in very limited circumstances. They are only available in exceptional cases where malicious, oppressive, or high-handed conduct warrants punishment based on the court’s assessment. The misconduct in question must significantly depart from ordinary standards of reasonable behaviour. In particular, the conduct may be described as harsh, vindictive, reprehensible and malicious. 

It is not enough to find that the plaintiff was successful in their claim. Punitive damages are available if there is an independent actionable wrong, including the employer’s breach of their implied duty of good faith and fair dealing. Suppose an employer fails to comply with the Employment Standards Act. In that case, they may be subject to punitive damages if their conduct rises to a level that deserves punishment, according to the court’s assessment of the circumstances. 

Overall, punitive damages are an exceptional measure and not necessarily available in all cases. There is a high standard to find that there was misconduct to warrant punitive damages. 

Court Orders $10,000 in Punitive Damages for Employer’s Failure to Pay Out Employee 

In the Giacomodonato case, the court ordered the employer to pay $10,000 in punitive damages to the employee for failure to pay out amounts owed to the employee. 

The employer had terminated the employee without notice in January 2018. However, at that time, the employer was aware that it still owed the employee a significant amount of compensation for the period of July 2016 to July 2017. There was also a second employment contract, and the employee was also entitled to some compensation from this second contract. 

Shortly after being terminated, the employee was asked to sign a certificate stating that he had not breached his restrictive covenants involving non-competition. However, the employee was not required to do so under any terms of the employment contracts, and he refused to sign. The employer concluded that the employee must have breached their covenants, even though there was no evidence of this. 

A few months later, the employer advised via letter that they would not continue paying the employee’s salary continuation payments under the second employment contract. In the letter, the employer set off the money owed against the money already paid. Also, the letter included a cheque with a term that the employee would give up all his entitlements to the amounts owed if he deposited the cheque. The employer explained that their actions arose from the employee’s refusal to sign the certificate. 

The court found no basis for the employer to take these steps in withholding or setting off amounts owed to the employee. The court noted that the employer abused their position of power in doing so. As a result, the court awarded the employee $10,000 in punitive damages. 

Contact Haynes Law Firm in Toronto for Advice on Termination and Wrongful Dismissal Claims

Employers and employees should carefully consider the termination clauses set out in the employment contract, as there are significant consequences if the clauses do not comply with legislative standards, including a potential wrongful dismissal claim. Employers may also be subject to punitive damages for failing to pay out amounts owed to the employee under the employment contract. Our experienced employment law legal team at Haynes Law Firm in Toronto can assist you with issues that arise from termination. For employees, our goal is to ensure that they understand their rights and receive maximum compensation in wrongful dismissal cases. Haynes Law Firm also assists employers in avoiding liabilities that may arise from terminations that are not permitted by the legislation. We are dedicated to finding the best resolution for you.

To book a consultation, please contact us online or by phone at 416-593-2731.

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Employee Terminations Employment Contracts & Policies

The Costs of Invalid Termination Clauses in Employment Contracts

One of the most essential terms of an employment contract is the termination clause. It outlines how an employer will address compensation if an employee is terminated. While employment contracts offer some flexibility in their content, employers must ensure that the employment terms do not contradict employment standards set out in Ontario legislation. In particular, employers should pay attention to how the termination clauses in their employment contracts are drafted, as the court may invalidate them if they conflict with the purpose of employment standards legislation. Generally, it is not permitted to contract out of employment standards set out by law.

In this post, we will discuss what will be considered an invalid termination clause in an employment contract. We will also discuss some of the consequences that can occur if a termination clause is found to be invalid. In some cases, the court may strike out the entire termination clause, and the employer may need to pay more damages to the employee than they anticipated. We will also review a case example, Lamontagne v. J.L. Richards & Associates Ltd., 2021 ONSC 8049, in which an employer was liable for $40,000 in damages to an employee due to an invalid termination clause. 

This post will provide key takeaways for employers seeking to draft enforceable employment contracts and employees seeking to understand their rights under employment contracts and employment laws.

What will be considered an invalid termination clause in an employment contract?

Most, if not all, employment contracts will contain a termination clause that sets out what will occur if an employee is terminated. It can also set out situations where an employee may be terminated without notice or pay in lieu of notice. However, it is important to ensure that these terms do not go against standards set out in the legislation. 

According to sections 54 and 61 of the Ontario Employment Standards Act, employers must provide notice or pay in lieu if they choose to terminate an employee, with some exceptions. 

If a termination clause attempts to contract out of the standards set by legislation, the entire termination clause may be unenforceable. Parties can agree to a notice period different from the minimum standards. However, this would only be enforceable if it complies with the minimum employment standards under the legislation and the wording is clear enough so that an employee understands their entitlement at the beginning and end of their employment. Otherwise, the employee would be entitled to reasonable notice upon termination. This means that employees can agree with their employer to receive a notice period longer than the minimum standards, but not less. 

The court will look at the particular wording of the terms at issue in the employment contract, the minimum standards legislation, and other existing case law. The courts have recognized that employment is a significant part of a person’s life, and upon termination, they are vulnerable and need to have their rights protected.

Generally, the court will interpret a termination clause to benefit the employee, given their relative vulnerability in the employment relationship. 

If the termination clause includes a term that the employee can be terminated for cause without notice, then it may be interpreted to mean that the employee was intended to be terminated for just cause. However, the “just cause” standard is lower than what is set out under the Employment Standards Act. Under the ESA, a “for cause” termination requires that the employee engaged in willful misconduct. Therefore, a “for cause” termination provision must be carefully drafted to meet the standard under the ESA, or it can be seen as an attempt to contract out of the minimum standards set by legislation, which is not permitted.

Terms may also exist for “without cause” terminations. Depending on the wording, these can also be seen as an attempt to contract out of the minimum standards. As discussed in the Lamontagne case below, if an employer states that an employee is only entitled to minimum standards of notice or pay in lieu, this may not cover the employee’s benefits and bonuses during the notice period and may go against the legislation.

What are the consequences of an invalid termination clause?

If one or more terms of a termination clause are invalidated, the entire clause may be unenforceable. As a result, the employee may be entitled to compensation for pay in lieu of notice at common law. The amount may be significant, depending on how long the employee worked for the employer, the nature of their role, etc. 

Invalid termination clauses in employment contracts can be costly for employers 

In the Lamontagne case, the court ordered that the employer pay the employee $40,000 as compensation for their termination. One of the issues was the termination clause. The court found that the “for cause” termination terms did not meet the minimum standards of the legislation. The term stated that employment could be “terminated for cause at any time, without notice,” meaning an employee could be terminated for just cause. The just cause standard is lower than the standard of willful misconduct in the ESA, so this was not permitted.

The “without cause” term was also found to be invalid. In this case, the employee was entitled to certain benefits and bonuses. However, the termination clause contained terms stating that the employee would not receive anything else beyond the minimum standards of notice or pay in lieu under the ESA. This term suggested that the employee would not be paid for the benefits and bonuses she was entitled to, so it contravened the minimum legislative standards.

Ultimately, the court found that the termination clause was not enforceable, and the entire section was struck out, rather than just the problematic portions. Therefore, the employee was entitled to reasonable notice or pay in lieu at common law. 

Key takeaways 

Employers must carefully consider the wording of their employment contracts, especially the termination clauses. If they are found to contravene the minimum standards as set out by legislation, the clauses may be struck out, and the employee could be entitled to reasonable notice or pay in lieu of notice, which can be very costly. 

Contact Haynes Law Firm in Toronto for Advice on Termination and Wrongful Dismissal Claims

Employers and employees should carefully consider the termination clauses in the employment contract, as there are significant consequences if the clauses do not comply with legislative standards, including a potential wrongful dismissal claim. Our experienced employment law legal team at Haynes Law Firm in Toronto can assist you with issues that arise from termination. For employees, our goal is to ensure that they understand their rights and receive maximum compensation in wrongful dismissal cases. Haynes Law Firm also assists employers in avoiding liabilities arising from terminations not permitted by the legislation. We are dedicated to finding the best resolution for you.

To book a consultation, please get in touch with us online or by phone at 416-593-2731.

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Employment Contracts & Policies

Confidential Workplace Documents and Terminated Employees

After being terminated, an employee may claim wrongful dismissal. Depending on the claim, there may be certain documents that an employee may want to enter as evidence to support their claim that they were wrongfully terminated. However, these documents may contain confidential information about their employer, especially if they are employed by a corporation that deals with sensitive user data and information. Generally, employers have policies on the return of workplace information so that employees no longer have access to this confidential information after termination. 

This post will discuss what happens when an employee tries to use confidential workplace information in their wrongful dismissal claim. We will discuss the case Rae v. Ecolab Co., 2023 ONSC 5995, in which the court ordered the employee to return workplace documents that contained sensitive information to the employer. These documents were not permitted to be admitted as evidence. The purpose of this post is to provide critical takeaways for situations where an employee tries to include confidential workplace information in their wrongful dismissal claim.

Confidentiality Policies 

It is important for employers to have policies on how an employee handles sensitive and confidential information during their employment. These policies set clear expectations on how employees must treat confidential information during and after they leave the company. 

For example, the employer can mandate that key employees can only access certain information with the appropriate login credentials. The policy may also include procedures for when documents must be destroyed, including ways to appropriately handle their destruction. 

In addition, an employer should consider what types of electronic security are available to protect confidential workplace documents, as many records are now stored digitally. An employer can also consider including training that helps employees avoid common mistakes with computer usage, such as phishing and downloading documents without verifying the sender. 

Employers can also consider requiring an employee to sign a non-disclosure agreement. If confidential information is leaked despite a non-disclosure agreement, an employer may also be able to pursue a claim for breach of contract. 

When an employee is terminated, an employer must ensure that the employee no longer has access to confidential information after leaving the company. Sometimes this can be difficult, as in the Rae case below, in which an employee took confidential company information without the employer’s knowledge to use these documents in his wrongful dismissal claim. Luckily, the court can offer remedies for these types of situations, as we will discuss below. 

Employee attempts to enter confidential workplace documents as evidence in wrongful dismissal claim 

In the Rae case, an employee attempted to use confidential workplace documents as evidence in his wrongful dismissal claim. 

The employer was a global company in the water, energy, and hygiene technologies and services industry. The parent company was located in the US as a publicly traded company. In this case, the action was brought against the Canadian subsidiary of the company, which was not publicly listed. 

The employee worked with the company for 11 years, from 2009 to 2020. The employee was a Certified Public Accountant who worked as a controller for the employer. He was also a director for the company. He was dismissed without just cause and was provided 10 months of notice as the company decided to eliminate the finance department of the Canadian subsidiary. 

When the employee commenced his claim, he included some of the employer’s documents. He admitted that he had taken the documents without the knowledge of his former employer. He stated he intended to rely on them for his wrongful dismissal case. The employee claimed that the documents were relevant to his case. He also claimed that there was no breach of confidence, as he did not misuse the information obtained, and the documents should not be considered confidential, as the employer did not comply with its own Code of Conduct, which required their employees to maintain the confidentiality of workplace documents both during and after working with the employer. In particular, he claimed that he had not publicly disclosed confidential information and held private copies of the documents, which were stored on a secure site. He claimed that he took the documents because the employer acted in bad faith and did not follow their Code of Conduct. 

As a result of his role, the employee had access to confidential financial information of the company. In particular, he was responsible for reviewing, preparing, and finalizing the company’s tax returns. His role also involved directing the company’s accounting and financial control standards. Due to his high-level management role, he was one of four key individuals accessing this confidential information. He accessed confidential financial information from the Canadian subsidiary and the US parent company. 

In this case, the information was protected with a password, and each employee with access had unique login credentials that could not be transferred. 

In the employment contract and an additional agreement for management-level employees such as the plaintiff, there were also terms to maintain the confidentiality of workplace documents. The employer also had a Code of Conduct, which outlined that employees were never to use the company’s confidential or proprietary information for personal gain, whether during their employment or after they leave the company. Furthermore, the employee received yearly training concerning the Code of Conduct and computer security. 

Court orders employee to return confidential workplace documents 

The court ordered the employee to return the confidential documents to the employer. The court found that many documents taken included financial information that was not required to be publicly disclosed. This information included the sales revenues, cash flows, and debts of the company, as well as payroll information. 

The court found that the employment contract clearly stated that the employee was not to take confidential information out of the company after leaving. The contract stated confidential documents would include financial information about the company.  

As the information was the company’s property, the employee was ordered to return it. The court found that allowing the employee to use this information would be much more prejudicial to the employer than important to the employee’s case. The court found that it would be an abuse of process to allow the employee to use stolen documents for his benefit in litigation. Also, the court noted that the employee could have brought a motion for the employer to produce the records, which would have provided an opportunity to address relevance and confidentiality. The balance of convenience favoured the employer, and they were provided injunctive relief for the employee to return the confidential documents. 

Contact Haynes Law Firm in Toronto for Advice on Confidential Workplace Documents

It is essential for employers to carefully understand the role of confidentiality agreements and policies in the workplace, as employees often handle highly sensitive data and information. As this will depend on the specific circumstances of your case, our experienced employment law legal team at Haynes Law Firm in Toronto can assist you with issues that arise from confidentiality in employment contracts. 

For employees, our goal is to ensure that they understand their rights and obligations under the employment contract. Haynes Law Firm also assists employers in avoiding liabilities that may arise from employment contracts and policies that do not adequately maintain the confidentiality of workplace documents. We are dedicated to finding the best resolution for you.

To book a consultation, please get in touch with us online or by phone at 416-593-2731.

Categories
Employment Contracts & Policies

Explaining the Right to Disconnect for Ontario Employees

The pandemic affected us in many ways, including radically shifting how work is performed. Now, it is much more common for individuals to work from home, which has led to a drastic change in work policies. There has been an increase in workers’ connectedness, as they can work through various devices. While this has made it more flexible for workers to perform work tasks, it can also lead to burnout if workers cannot disconnect outside of work hours. The line between one’s personal life and work life becomes blurred. The Ontario government has amended the Employment Standards Act to address this issue. Employers are now required to provide a right-to-disconnect policy to employees. 

In this post, we will discuss the right to disconnect from the new amendments to the Ontario Employment Standards Act. We will describe when the policy will apply and what obligations employers must fulfill to ensure they meet the standards. This post will provide key takeaways for employers seeking to understand their requirements under the amended legislation and will help employees understand their rights. 

What is the “right to disconnect” under the Ontario Employment Standards Act?

According to the Ontario Employment Standards Act, employers must provide a policy on disconnecting from work to their employees. 

Under the Act, disconnecting from work includes “not engaging in work-related communications, including emails, telephone calls, video calls or the sending or reviewing of other messages, to be free from the performance of work.“ From this provision, the Act covers a variety of electronic communication methods.  

Notably, the employer has no positive obligation to adopt a new right for employees to disconnect from work after work hours. However, those will be enforced if the disconnection policy provides further rights to the employee. If the policy offers fewer entitlements than as set out in the Employment Standards Act, then the rights in the Act will be enforced. 

Does the “right to disconnect” apply in your circumstances?

Generally, employers with 25 or more employees must provide their employees with a policy on disconnecting from work during non-work hours. 

The requirements for employers to provide a policy on disconnecting from work was enacted on December 2, 2021. During the early stages (i.e. in 2022), employers with 25 or more employees on January 1, 2022, were required to have a written policy on disconnecting from the workplace by June 2, 2022. 

Starting in 2023 and for the following years, employers with 25 or more employees on January 1 of that year must have their written policy on disconnecting from work available before March 1 of that year. In other words, they have approximately two months to prepare and distribute the written policy. Generally, all workers considered employees under the Act will be included in the employee count. This would also include the following types of workers: 

  • Part-time or casual workers, regardless of how many hours they work
  • Employees who have been laid off, so long as the employment relationship has not been terminated and/or severed
  • Employees who are on a leave of absence
  • Employees who are on strike or who are locked out.

The requirement for employers to provide a policy on disconnecting from work applies to all employers with employees covered by the Employment Standards Act. This requirement does not apply to Crown agencies, corporations, etc. 

Employers with multiple locations 

For employers with multiple locations, the 25-employee requirement will only include the number of employees working at all Ontario locations. For example, if an employer operates multiple Ontario locations with less than 25 employees each, but the total number of all employees at all the locations exceeds 25, then the requirement applies. 

What happens when the number of employees fluctuates throughout the year?

If the employer has over 25 employees sometime after January 1 of that year, they will not need to provide a written policy on disconnecting from work. For example, consider a scenario where an employer has 20 employees on January 1, 2023, but hires ten more employees during the middle of the year. In this scenario, the employer does not need to provide a written policy. However, if there are 25 or more employees by January 1, 2024, then they would need to provide a written policy. 

Consider the opposite scenario. If the employer has 25 or more employees at the start of January 1, 2023, but the number of employees decreases below 25 later that year, then the employer would still need to provide the written policy. If by January 1, 2024, the number of employees remains below 25, then the employer will not need to provide a written policy for 2024. 

Requirements for employers to provide a right to disconnect policy 

The employer’s written policy must cover the topic of “disconnecting from work,” which involves not engaging in work-related communications, including emails, telephone calls, video calls or sending or reviewing other messages, to be free from the performance of work. Note that this covers other communication methods beyond those listed. 

In their policy, employers are required to include:

  • The date the policy was prepared, including day, month, and year
  • The date of any changes made to the policy, including day, month, and year. 

The Act does not specify what information needs to be included or how long it should be. It is up to the employer to decide the content of the policy. 

The policy could provide wider rights than those in the Employment Standards Act. The case law surrounding the enforceability of such policies is developing, so it is important to consider whether these terms would be upheld as a contractual or common law entitlement beyond the minimum standards in the Act. 

When should the policy be provided to employees?

The written policy must be provided to employees within 30 days of being prepared and the policy being changed from an existing policy. If an employer already has a written policy, they are not required to develop a new one. If new employees are being hired, they must provide the policy to the new employee within 30 days of being hired. 

The employer can provide the policy in the following formats:

  • a printed copy
  • an email attachment if the employee can print a copy
  • an online link to the document, given that the employee has a reasonable opportunity to access the document and a printer.

Key takeaways 

While the amended legislation does not require an employer to develop a new right to disconnect from work, employers still need to fulfill requirements regarding a written policy for disconnecting from work. It is important to remember that employees also continue to be covered by the Employment Standards Act, including standards on work hours, even if employees may not receive a greater benefit from a policy on disconnecting from work. 

Contact Haynes Law Firm in Toronto for Advice on Workplace Policies

In Ontario, there are new requirements for employers to provide a written policy on disconnecting from work, so it is important to consider the legal effects of such a policy carefully. Our experienced employment law legal team at Haynes Law Firm in Toronto can assist you with employment contracts and policies. For employees, our goal is to ensure that they understand their rights under their employment contract and related policies. Haynes Law Firm also assists employers in avoiding liabilities where their employment contracts or workplace policies are not in line with legal requirements. We are dedicated to finding the best resolution for you.

To book a consultation, please contact us online or by phone at 416-593-2731.

Categories
Employment Contracts & Policies Independent Contractor vs. Employee

Are You An Independent Contractor Under Ontario Employment Law?

Generally, Ontario employees are entitled to standards under employment legislation, such as reasonable notice or pay in lieu of notice upon termination, overtime pay, sick days, and vacation days. However, under Ontario employment law, independent contractors do not have the same protections as long-term employees. 

Therefore, it is important to identify whether an individual is an independent contractor or not. As discussed in the case below, even if an individual is classified as an independent contractor in the employment contract, this does not mean that they are automatically independent, as it depends on various factors in the employment relationship. 

This post will discuss when individuals would be considered independent contractors. We will also discuss how their rights differ from those of employees. Furthermore, we will examine a case example, Baker v Fusion Nutrition Inc, 2022 ONSC 5814, in which the court found that the employee was not an independent contractor despite being classified as such in the employment contract. Whether it is an employment contract or an independent contract, this post provides critical key takeaways for parties.

How is an independent contractor different from an employee in Ontario legislation?

To determine whether a party is an independent contractor, the court will consider the following factors:

  1. Whether or not the party is limited to exclusively serving the employer; 
  2. Whether the party is subject to control by the employer with respect to products sold, including when, where, and how products are sold;
  3. Whether the party has an interest or investment in the tools related to their work; 
  4. Whether the party has undertaken any business risk or expects to profit from his work other than from a fixed commission;
  5. Whether the party is part of the business organization of the employer.

Helpful evidence of these factors can include whether the party was paid regular wages, whether they could refuse work from the employer, whether they reported to a supervisor of the employer’s business, and whether there was an opportunity to profit based on their performance. 

How do the rights of independent contractors differ from employees?

Independent contractors are not covered by the minimum standards set out in the Ontario Employment Standards Act. This means that they do not have basic minimum standards for the following:

  • Reasonable notice or pay in lieu if they are terminated
  • Minimum wage 
  • Overtime pay, if applicable
  • Sick days 
  • Vacation days or pay in lieu 
  • Certain paid or unpaid leaves, such as parental leave 

Some dependent contractors fall between an independent contractor and an employee. They are also not entitled to most of the protections under the Employment Standards Act, except for reasonable notice or pay in lieu of notice if they are terminated.

You may be an employee, even if your contract says you are an independent contractor 

There may be situations where an employer will specify that a party is an independent contractor rather than an employee. However, this is not determinative. The court will look at the factual circumstances of the case to determine if a party is an independent contractor, dependent contractor, or employee. 

In a recent Ontario case, Baker v Fusion Nutrition Inc., the court found that a party was an employee or dependent contractor rather than an independent contractor despite being classified as such in the employment contract. 

The plaintiff began working for the defendant in 2020. He worked with the defendant’s Head of Global Sales to increase sales revenue. The parties signed a written agreement in 2021 for their working relationship. The plaintiff was paid $6,250 per month. He was also provided with an $800 allowance for a car and related expenses. 

The plaintiff was classified as an independent contractor in the contract unless a further written employment agreement between the parties changed this. 

Later, in 2021, the plaintiff claimed that the defendant did not pay him on time and locked him out of the office. The plaintiff considered this a termination and claimed that the termination clause in the contract did not meet the minimum standards of the Employment Standards Act, which applied to him as an employee rather than an independent contractor.

The court found that the plaintiff was an employee based on the evidence. The court considered several factors which suggested that they were an employee rather than independent contractor: 

  • The plaintiff’s primary income source was from the employer 
  • The plaintiff worked full-time hours
  • The plaintiff worked at the company’s head office
  • The plaintiff’s work was largely dictated and controlled by the employer, as he was not able to refuse work
  • The plaintiff did not hire any of his own helpers
  • The plaintiff did not have opportunities to profit from his performance, and there was no evidence that he assumed any business risk 
  • While the plaintiff was permitted to have other clients, they could not be competitors of the employer
  • The plaintiff’s other work could not interfere with his work with this employer 

The court found that the plaintiff’s work was primarily restricted to the defendant’s business. 

The court also found that the plaintiff could be considered a dependent contractor and entitled to reasonable notice or pay in lieu upon termination. 

In conclusion, the court determined that the termination clause in the contract was not enforceable, as it did not meet the minimum standards of the Employment Standards Act, which applied to the plaintiff, as he was either an employee or a dependent contractor.

Key takeaways 

It is important to consider the employment contract and employment relationship carefully if an independent contractor is involved. As the case law shows, a party may be considered an employee even if the contract says they are independent contractors. The court will need to look at the factual circumstances to determine if the employee meets the criteria, including how much control they had over their work, their hours, to whom they reported, etc. Therefore, they may be entitled to specific minimum standards under Ontario employment law, which may affect the enforceability of terms in the contract. 

Contact Haynes Law Firm in Toronto for Advice on Employment Contracts Involving Independent Contractors

Employment contracts may stipulate that a  party works as an independent contractor, meaning the minimum standards under Ontario employment law would not apply. However, based on the facts, a court can find that a party is an employee rather than an independent contractor, which may render some of the employment contract terms unenforceable. As this will depend on the specific circumstances of your case, our experienced employment law legal team at Haynes Law Firm in Toronto can assist you with issues that arise from employment contracts involving independent contractors. For employees, our goal is to ensure that they understand their rights and obligations under the employment contract. Haynes Law Firm also assists employers in avoiding liabilities that may arise from employment contracts that are not in line with legislation or case law. We are dedicated to finding the best resolution for you.

To book a consultation, please contact us online or by phone at 416-593-2731.

Categories
Employment Contracts & Policies

Accepting New Employment When You Have A Non-Compete Clause

Some employment contracts, including many for employees working in the tech industry, have a non-compete or non-competition clause. This means an employee cannot work for another similar employer, typically within a specific time frame. For instance, the employee may need help to work for an employer in the same field that has worked on similar technology for a year or more. Relatedly, there may also be confidential information that an employee cannot share with a new employer regarding any work or technology developed by the employee. However, the employee will need to take on new work eventually, and using one’s experience to find similar work may be beneficial.

We will discuss what happens when an employee accepts a new role with an employer that does similar work despite a non-competition clause. We will also examine a recent case, EF Institute for Cultural Exchange Ltd. v. WorldStrides Canada, Inc., 2023 ONCA 566, in which an employee was found not to have breached the non-competition clause and confidential information agreement terms after negotiating his new position with his former employer’s competitor. This will be helpful for both employees and employers in understanding non-competition clauses.

What is a non-compete or non-competition clause in an employment contract?

If an employee signs an employment contract with a non-compete clause, they cannot enter into a role that is in competition with their employer until a specified term ends. For example, the non-compete clause may expire at the end of the employee’s employment or a particular time afterward, such as one year. The non-compete clause may also specify that the employee may not work for an employer in a similar line of work in a specified geographical location or market.

The employee may be required to sign a separate non-compete agreement if the employment contract does not include a non-compete clause.

Generally, the employee is prohibited from sharing confidential information with a new employer.

Recent Ontario legislation prohibits non-competition agreements after October 25, 2021

More recently, Ontario passed legislation prohibiting non-competition agreements after October 25, 2021. This means that employers cannot ask Ontario employees to sign an agreement that prevents the employee from engaging in work that competes with the employer’s line of work after the employment contract ends. This prohibition covers restrictions on both time and geographical location. In other words, an employer cannot have a non-compete clause that limits the employee from seeking work from a competitor after a specified period or in a particular location or market.

However, as this legislation only applies to non-competition agreements and clauses that are entered into after October 25, 2021, the existing laws on non-competition clauses are still helpful as non-competition agreements may have been signed at the beginning of one’s employment, which may be before October 25, 2021.

Also, there are exceptions to this prohibition. Generally, non-compete clauses may still apply to company executives, such as a chief executive officer, president, chief operating officer, etc. The legislation does not cover employment agreements for executives.

Can you negotiate a new role before your non-compete clause expires?

It is possible to negotiate an interview for a new role with a competitor of one’s employer before the non-compete clause expires, but this should be exercised with caution. An employee may also need to sign an agreement regarding confidential information with an employer, and the employee needs to ensure they are not breaching the agreement during interviews or negotiations with a potential new employer if they compete with their previous or existing employer.

In a recent case, EF Institute for Cultural Exchange Ltd. v. WorldStrides Canada, Inc., the court found that the employee did not breach the non-compete and confidentiality agreements while interviewing and negotiating a new role with a competitor. Despite being a recent case, the non-compete clause was not prohibited by Ontario legislation as it was entered into before October 25, 2021, and the employee was president of the company.

In the EF Institute case, the employee worked for EF Institute since 2005 and was most recently employed as president of the company starting in 2011. He signed an employment agreement for his new role with a non-compete clause and terms restricting him from sharing confidential information about EF Institute. This was signed in 2012.

Later, the employee was dismissed without cause in 2014. His non-compete clause would expire by September 30, 2015, one year after the date of his severance agreement. One day after, on October 1, 2015, the employee began working for a competitor, WorldStrides.

EF Institute claimed that the employee breached the non-compete clause and confidentiality agreement by engaging in interviews and negotiations that led to an offer from WorldStrides while the non-compete was still in effect.

In April 2015, the employee attended an interview with WorldStrides employees and officers. The employee then provided copies of his employment and severance agreements, which included terms that the employee would abide by the non-compete and confidentiality terms.

By June 2015, the employee was verbally offered a general manager position with WorldStrides, beginning on October 1, 2015, after the non-compete term expired.

The court found that the employee did not breach his confidentiality requirements after reviewing the interview notes, email correspondence, and employee’s resume shared with WorldStrides.

EF Institute appealed.

On appeal, the court agreed with the motion judge that the employee never provided confidential information to WorldStrides during the interview and negotiations process. The court also found no evidence that the employee assisted WorldStrides with business before the non-compete expired. The appeal was dismissed.

Key takeaways

Despite the new Ontario legislation prohibiting non-compete clauses, these terms may still apply if they were entered into before October 25, 2021. Also, non-compete clauses can still apply to employees who are in executive roles. Therefore, it is essential to carefully review any non-compete terms in one’s employment agreement to ensure they are followed. If one is accepting a new role with a competitor during the non-compete period, this should be exercised with caution.

Contact Haynes Law Firm in Toronto for Advice on Non-Compete Clauses in Employment Contracts

Despite recent Ontario legislation prohibiting non-compete clauses, they still may apply to your employment. They may restrict you from working for certain employers for a period of time or within a particular location. As this will depend on the specific circumstances of your case, our experienced employment law legal team at Haynes Law Firm in Toronto can assist you with issues that arise from non-compete clauses and confidentiality requirements in employment contracts. For employees, our goal is to ensure that they understand their rights and obligations under the employment contract. Haynes Law Firm also assists employers in avoiding liabilities that may arise from employment contracts that are not in line with legislation or case law. We are dedicated to finding the best resolution for you.

To book a consultation, please contact us online, or by phone at 416-593-2731.

Categories
Employee Terminations Employment Contracts & Policies

Continuing to Work With A Company After It Is Sold

After a company is sold, this can bring some changes to the employment situation of existing employees. Sometimes, existing employees will be kept on, and other times, they may be asked to work temporarily for the new employer. Depending on whether an employee is considered to be on a fixed-term or indefinite-term employment contract, this can affect their rights and compensation to which they may be entitled. The employee’s status may also depend on how the business was sold (i.e. asset or share sale).

In this post, we will provide an overview of the differences between the entitlements of a fixed-term employee vs. an indefinite-term employee. We will examine a recent case, Manthadi v ASCO Manufacturing, 2023 ONSC 3499, which involves the sale of a business. An existing long-term employee, in that case, claimed that they continued employment on an indefinite term, whereas the new employer claimed that the existing employee was on a fixed-term contract, which involved different compensation entitlements. 

Ultimately, the court found that the employee was on an indefinite-term contract. We will discuss how the court came to its conclusion, which will provide helpful insights for employees and employers when an existing employee continues to work for a company after it is sold. 

Fixed-term vs. indefinite-term employment contract 

First, it is important to understand the difference between a fixed-term and indefinite-term employment contract and what rights flow from this distinction. 

Fixed-term employees have the following characteristics:

  • The employment term is fixed, meaning that there is a definite start and end; 
  • The employee’s duties typically are required to be completed within a specified time period; 
  • The employee’s work is meant to assist with a temporary need; 
  • The employee does not have permanent status with the employer. 

Indefinite-term employees have a permanent status with the employer and are not hired to deal with a temporary need or project that is to be completed during a set period of time. They are also entitled to reasonable notice or pay in lieu of notice upon termination, which can include minimum standards set out by the Employment Standards Act, compensation required under common law, and any other relevant terms in the employment contract. 

Generally, employers are not required to provide reasonable notice of termination for employees on a fixed-term contract, as the employment relationship ends at the date specified in the contract. There are exceptions to this rule, however, such as if the employee is terminated before the end of the project term as set out in the contract. 

When a business is sold, it can be unclear to an existing employee whether they are now on a fixed-term contract or indefinite-term contract with the new employer. This was one of the issues in the Manthadi case described below. 

Existing employee not informed of temporary basis of employment with new employer 

The employee was a welder working for a company that manufactured tables and desks. She worked with the employer for 36 years until the business was sold to a new owner, ASCO. 

After the business was purchased, the employee claimed that she was offered employment from ASCO to continue her role as a welder. She was terminated one month later and sought damages for wrongful termination. 

ASCO claimed that they hired the employee on a temporary basis to move assets to a new location. They claimed that after this task was complete, her fixed-contract term ended, and she was not entitled to notice or pay in lieu of notice for her termination. 

Existing employee continues to work for new employer without written contract 

After the business sale, the employer did not request a resume or interview from the employee. There was no evidence of a written employment contract between the employee and the new employer. She did, however, continue to work for ASCO. 

The employee claimed that ASCO never informed her that her work would be temporary. She also stated that she understood that employment with ASCO would be ongoing and her many years working at the company would be recognized. 

ASCO claimed they intended to hire other workers from an employment agency to help with the relocation but offered this temporary work to existing employees as a reasonable gesture while they were looking for new positions elsewhere. Also, they claimed that they had enough existing workers to operate the business from their other manufacturing business. It was, therefore, unnecessary to hire any employees working with the previous employer other than to assist with the relocation temporarily. ASCO also claimed that they did not require the employee as a welder because they used a different form of welding in their manufacturing. 

However, ASCO conceded that they did not inform the employee that they were only hiring her temporarily and not on a long-term basis. They should have informed her that her work would end after the relocation. 

The employee continued to work for ASCO as a welder. She worked at the same hourly rate and worked the same hours as her previous role, according to her pay stubs. Her duties also involved more packing to assist with the move. There was no welding station at the new location, but it was her understanding that she would continue welding at the new location. 

The court found no evidence that ASCO informed the employee that her work with this new employer would be temporary. There was no written contract setting out these terms, and there needed to be evidence that she was otherwise verbally informed by ASCO. 

It needed to be more sufficient for ASCO to claim that the previous employer had told the employee she was to continue working on a temporary basis. ASCO was obligated to communicate this to her. 

Ultimately, the court found that the employee was on an indefinite-term contract, and she was entitled to notice or pay in lieu of notice. 

Key Takeaways 

When a business is purchased, it is important for new employers to consider the employment of existing employees carefully. They are obligated to communicate if an offer of employment is temporary or not. Preparing new contracts for existing business employees may be helpful so that the terms can be set out. 

For employees, it is important to note what was communicated regarding an employment offer from a new employer after the business is sold, as it may impact what entitlements flow from a new employment relationship. 

Contact Haynes Law Firm in Toronto for Advice on Fixed-Term vs. Indefinite-Term Employment Contracts 

After a business is sold, the new employer must consider whether to seek work from existing business employees. It is important to clearly communicate whether the new work will be done on a fixed or indefinite term basis, as this affects compensation upon termination. Our experienced employment law legal team at Haynes Law Firm in Toronto can assist you with issues that arise from termination. For employees, our goal is to ensure that they understand their rights and receive maximum compensation in termination cases. Haynes Law Firm also assists employers in avoiding liabilities arising from terminations not permitted by the legislation. We are dedicated to finding the best resolution for you.

To book a consultation, please contact us online or by phone at 416-593-2731.