The changing legal landscape

Interviews with three of Canada's top employment lawyers

Canadian HR Reporter's Todd Humber sat down with three of the country’s leading employment lawyers to talk about what’s hot in the employment law realm and what employers need to know about.

From the impact of Bill C-45 — the law that paved the way for criminal charges in workplace accidents — to reasonable notice and what defines compensation in the 21st century, there’s a lot going on.

•Employment contracts are bulking up as employers realize their only real asset is walking around the office and could leave at anytime.

•Courts are wrangling with the definition of compensation, and whether or not stock options play a role in reasonable notice.

•Only one criminal charge so far under Bill C-45, the “corporate killing” law, but lawyers didn’t expect a flood of charges under legislation that has raised the profile of workplace safety.

•Western employers push limits of drug testing for employees in order to protect massive investments in oil and gas.



Employers understand value of employees
Brian Grosman Grosman, Grosman and Gale — Toronto

Employment contracts are getting thicker, more complicated and employers are starting to use them more often. That’s something Brian Grosman has noticed, and the bulk of the added paper deals with restrictive covenants — clauses that prevent employees from competing with their employer and soliciting clients, suppliers and employees if their employment is terminated.

“These have become very important as companies realize more and more that their only real asset is walking around the office and could potentially walk out the door anytime,” said Grosman.

As a result contracts that in the past were two or three pages are now tipping the scales at 20 or 30 pages. Up to two-thirds of these longer contracts deal with restrictive covenants of one sort or another, he said.

It’s now typical for restrictive covenants to include things like:

•a technical confidentiality agreement;

•non-solicitation clauses that prohibit the solicitation of clients, suppliers and employees; and

•non-compete clauses that state the employee can’t compete directly or indirectly with the former employer.

And while they’re popping up in more contracts, courts have been dealing with them for years and, if the restrictive covenants are going to survive, the company must get over a number of “very substantial” hurdles, Grosman said.

Courts have taken a dim view of non-compete clauses when they are combined with non-solicitation clauses, he said. That’s because, in most cases, the court will find the non-solicitation clause, on its own, enough to protect the employer’s interest.

More employers using contracts

Grosman said more employers are turning to employment contracts for two reasons. One, as discussed above, is based on the perceived need to retain some control over the information that walks out the door with a departing employee.

The other stems from the landmark 1997 Supreme Court of Canada decision in Wallace v. United Grain Growers. (For more on Wallace, click on the “related articles” link at the bottom of this page.) In that case the court set a standard that when an employer terminates an employee, it has an obligation to carry out the termination fairly and in good faith, said Grosman.

In response some employers have turned to contracts that contain a term that outlines the severance the employee will receive if terminated without cause. That way it will be irrelevant whether or not the termination was handled properly, because courts are loathe to rewrite contracts — at least that’s the general thinking.

“Courts are very reluctant to rewrite contracts, even contracts which are not all that fair, unless there is duress or the employee didn’t have adequate independent advice,” said Grosman.

But though there is some legal logic behind this approach, it’s likely a false security blanket for employers, he said. That’s because the Supreme Court did not say the Wallace decision was restricted to common law, leaving the door open for it to come into employment contracts, regardless of what terms are set out for notice, if the employer handles the termination in a callous manner. Grosman said he’s argued for some time now that the principles of Wallace should apply regardless of what the employment contract states.

Why don’t all employers use contracts?

For all the protections a contract offers an employer, many organizations don’t use them.

For one, a poorly drafted contract can be worse than none at all. And, from his experience, the bulk of employment contracts aren’t well-written.

Second, most employees simply don’t want one. Low-level employees and middle management are often better protected by the common law than the restrictions that might be contained in a contract.

But one of the main reasons is the “honeymoon mentality” that exists when an employee is hired, he said.

“When you hire someone that last thing you think about is the consequences of firing them, and so the kind of letters that are written by employers are letters that start out, ‘Welcome aboard,’ and deal with compensation,” said Grosman. “It’s very seldom that an employer takes the time to deal with termination unless you’re hiring at a fairly high exec level where the compensation on termination is significant.”

But a properly drafted employment contract is always in the employer’s interest, he said.

Stock options and notice periods

One of the hottest items in employment law right now is how courts are defining compensation, said Grosman.

An employee who is fired without cause is entitled to reasonable notice. Traditionally that notice has come in the form of salary, bonus and benefits, or some combination thereof, depending on the facts of each case and what the employment contract, if there is one, states.

But an unknown area has been what happens to stock options during the notice period. Kieran v. Ingram Micro Inc., a case Grosman has appealed to the Supreme Court of Canada, deals with what happens to stock options over the notice period.

Grosman, who represents the employee in Kieran, has argued, unsuccessfully so far, that employees should be entitled to stock options during the notice period if they are wrongfully dismissed, just like they are entitled to other forms of compensation.

Courts have relied heavily on the contractual terms contained in stock option plans, said Grosman.

“Those terms often permit employers to deprive employees of a substantial portion of their compensation,” he said. “Stock option agreements are technically worded and the wording usually precludes the employee from exercising the stock options once his employment has been terminated, so that there is no vesting over the period of reasonable notice.”

In Kieran the court found the wording of the plan precluded the employee from entitlement upon termination, Grosman said.

“I argued that most employees have little or no capacity to negotiate the terms contained in the stock option agreements that appear to form part of their employment relationship,” said Grosman. “In many cases the terms and conditions of the stock option plan are not even provided to the employees until after they’ve accepted employment.”

In Kieran’s case, the plans weren’t in place until well after his employment started. And the dollars are significant. Grosman said Kieran’s annual salary was $200,000 but he would have earned an additional $625,000 over a nine-month notice period through stock options.

“The current trend in Ontario case law has created an unfortunate, albeit unintended, incentive for employers to exploit the inherent power imbalance between themselves and their employees,” he said. “Currently employers are in a position to make representations to their employees that stock options form an integral component of their compensation without having to continue such compensation when the employer terminates the employee.”

And since so many employees — particularly in the financial and high-tech sectors — work primarily for stock options, it’s an issue of critical importance.



Lack of ‘corporate killing’ charges not surprising

Brian Johnston Stewart McKelvey Stirling Scales — Halifax

When Bill C-45, the “corporate killing” law that allows criminal charges to be laid against co-workers, supervisors and executives in workplace accidents, came into force last March, Brian Johnston dealt with a flood of phone calls from concerned employers.

Now, almost a year later, only one charge has been laid. A 68-year-old construction supervisor in Ontario was charged last August after a trench collapsed, killing one man, near Toronto. Johnston said he’s not surprised more charges haven’t been laid, and not at all surprised that no charges have been laid in Nova Scotia because most employers in the province are well aware of the new law.

After all, Bill C-45 had its genesis in Nova Scotia in the wake of the Westray mine disaster. On May 9, 1992, 26 coal miners were killed in an explosion. So there was an acute awareness in Nova Scotia about the law and its serious ramifications that could see high-ranking executives put behind bars.

Another reason for the lack of charges is the high standards for prosecution, he said.

“The prosecution standard that has to be achieved is quite a high standard — it’s the criminal standard,” said Johnston. “So I understand why prosecutors haven’t rushed out to prosecute under Bill C-45 and, let’s face it. The prosecutors might not yet be as fully comfortable with C-45 as others who have grown to be comfortable with occupational health and safety legislation are.”

But the fact more charges haven’t been laid isn’t a sign the legislation isn’t doing what was intended, he said.

“Employers know about the general duties to ensure that the workplace is safe and to take all reasonable steps to ensure that it is safe. Employers would do that, one would expect, without the requirement of law,” said Johnston. “But it has served a purpose, from a policy perspective, to reinforce in the minds of employers the importance of occupational health and safety and the consequences to them and their employees in having a workplace that isn’t safe.”

Reasonable notice capped?

One of the more interesting cases Johnston saw in Nova Scotia this year was Silvester v. Lloyd’s Register North America Inc., which effectively caps wrongful dismissal damages at 24 months, he said.

In that case Silvester, an employee in late 40s who had been with the company for 17 years, was wrongfully dismissed. In the court’s view, the employer handled the termination in a callous manner and it awarded Wallace damages. It awarded a total of 30 months’ notice to the employee.

“That was huge. That was a big reward, never before in Nova Scotia,” said Johnston. “And it was in a large part because the judge felt that Wallace damages were appropriate.”

The employer appealed the decision and the Court of Appeal reduced the notice period from 30 months to 24 months.

Typically, an employee in Silvester’s situation would be entitled to about 18 months’ notice, using the very rough guideline of one month per year of service, said Johnston.

“The court, obviously, thought his circumstances entitled him to much more — 24 months ultimately,” he said. “That’s not the absolute maximum, but you’ve got to have really serious facts to get over that and I think that Silvester had a lot of serious facts.”

Human rights moving to the courtroom?

Another emerging trend Johnston is keeping his eye on is human rights, and the possibility that more employees might decide to take human rights complaints to the courts instead of to the human rights commission.

“The average person who has been dismissed by an employer, who has a human rights basis or hook to the action, may say I’m not going to bother going down to the human rights commission,” he said.

That’s because human rights commissions are notoriously slow and the damage awards tend to be much smaller than what has come from the courts. Nova Scotia (Human Rights Commission) v. Dural precluded an employee from launching a human rights complaint because he was pleading human rights as part of his wrongful dismissal claim.

And an earlier case in Ontario, Parry Sound (District) Welfare Administration Board v. O.P.S.E.U., spoke to the idea that human rights principles can be incorporated into a collective agreement without any express provision in the collective agreement.

“And so in Parry Sound if human rights principles can be incorporated into a collective agreement then they can certainly be incorporated, by analogy, into an employment contract,” he said.

That could lead to a situation in Canada, not unlike the United States, where there is more human-rights based litigation in the courts, he said.



Employers push drug-testing envelope

William Johnson
McGown Johnson — Calgary

Drug testing of employees is a hot issue in Alberta right now, according to William Johnson. It’s being driven, in a large part, by oil and gas firms that are pouring billions of dollars into massive oil sands projects.

In an effort to protect that investment, those employers are becoming more vigilant about drug testing and have imposed some fairly high standards, said Johnson.

“They have demanded that general contractors get on board, which then has caused the construction unions and others to come to agreements,” he said. “And then there’s testing outside those agreements that really pushes the understanding of what the law is right now.”

Pre-employment testing, random testing and what is reasonable cause for testing are all issues that are being pushed, he said. As a result, there’s pressure on the provincial government to legislate what is permissible and what is not.

Privacy

Alberta’s privacy legislation was recently declared by Industry Canada as being substantially similar to the federal privacy law. This means that all employers in Alberta have to abide by the provincial legislation. But since privacy laws are relatively new in Canada, there are still a lot of grey areas when it comes to what employers can and can’t do, he said.

“We’re going to have to define the standards as to when you can do surveillance of employees without them knowing it and when you can do surveillance when they do know about it,” said Johnson. “Those are issues that are going to be tested.”

He said he was working on a case that involved a retail worker who allegedly stole from another retailer. That second retailer, who was not his employer, told his employer about the alleged theft and the worker was then fired.

“We’re alleging that’s a breach of privacy,” said Johnson. “They had no right to be exchanging that kind of information, so we’re going to be learning some lines from that kind of thing.”

On the health and safety front, he said Bill C-45, the “corporate killing” law, is making employers think more about workplace safety and he’s not at all surprised that more charges haven’t been laid.

“It’s going to be one of those pieces of statute law that I don’t think is going to generate a lot of lawsuits or legal issues,” he said.

One of the more interesting offshoots of Bill C-45 is that it is causing employers to think twice about returning a worker to the job early from an injury.

“The employer has greater backbone by saying, ‘I’m not putting you back to work until I know it’s safe. I won’t put you in certain situations where you want to work for accommodation until I know that you are capable of doing this work,’” he said.

Common mistakes

If there’s one tip Johnson could offer to employers, it would be to communicate more with an employee who is being terminated. Too often, employers fail to interview the employee before they decide to fire her and proceed based on assumptions.

“That’s frequently a significant mistake,” he said. “So sometimes the employer assumes he understands what went on and dismisses when if he had interviewed the employee he might have found a different explanation that is plausible,” said Johnson.

If nothing else, interviewing the employee before the decision is made to terminate allows the employer to make a record of its reasoning, and the employee’s response, which could be critical if the matter ends up in court.

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