Editor’s Message

The summer edition of the Labour & Employment News features an article on the ability of human rights tribunals to reinstate employees whose employment has been terminated for discriminatory reasons. In addition, an article on avoiding the common pitfalls of employment contracts speaks to creating enforceable contracts, and our Practice Tips section addresses “10 reasons not to prematurely dismiss an employee under Quebec Law.”

Finally, this edition includes an article from Jackson Lewis LLP on a US Supreme Court case re-affirming class action waivers in arbitration agreements.

We value your feedback. If you have suggestions, or an issue you would like addressed in a future edition, please feel free to contact us directly.

Editors

Jennifer Fantini
Toronto
416.367.6726
JFantini@blg.com

Naomi Calla
Toronto
416.367.6129
NCalla@blg.com

 

L&E@BLG Speaks

Speaking Engagements for Summer 2013

Lawyer's Name

Topic

Date

Justine Laurier and André Royer

10 Good Reasons not to Prematurely Dismiss An Employee

June 7, 2013

Melanie Warner

BLG Health Law Seminar for Hospital In-House Counsel; “Physician Leadership Contracts”

June 11, 2013

Jennifer Fantini

Osgoode Certificate course, HR Law for HR Professionals, July 11, 2013 “Releases, References and Other Considerations”

July 11, 2013

Melanie Warner

BLG M&A and Regulatory Panel; “Employment Issues Arising from Consolidation in the Securities Industry”

June 12, 2013

Melanie Warner

LSUC 6 Minute Employment Lawyer; “Employment Standards  Update”

June 13, 2013

Melanie Warner

HRPA HR Certificate for Accounting (CMA) Professionals; “Employment Law Update”

July 25, 2013

Melanie Warner

HRPA HR Certificate for Accounting (CGA) Professionals; “Employment  Law  Update”

September 17, 2013

Naomi Calla and Jennifer  Fantini

BLG Breakfast Club Seminar, Family Status Update

September 17, 2013

 

Can Employment Contracts be Airtight? — Avoiding Common Pitfalls

In recent years, written offer letters and employment contracts have become much more common. Employers and employees typically agree that reducing essential terms and conditions to writing ensures certainty both during the employment relationship and at the time of termination, and reduces the likelihood of costly litigation.

In order for an employment contract to be enforceable, it must contain the essential elements of a contract: an offer by the employer, acceptance by the employee, and consideration. Consideration consists of a benefit flowing in both directions (at its most basic level, the employee provides services, and in exchange is paid compensation). In addition, employment contracts must comply with the minimum requirements of the Employment Standard Act, 2000 (the “ESA”), or other applicable employment standards legislation. For example, employers cannot contract to provide less than minimum ESA termination notice or pay, and severance pay, if applicable, upon a termination without cause. Finally, employees should enter into employment contracts freely, voluntarily, and without undue influence or duress. If undue influence or duress can be shown, the employment contract will be unenforceable.

General Principles Applicable to Written Employment Contracts

When drafting and entering into employment contracts, certain general principles apply:

  • Employment contracts must be signed before the first day of work. If an employment contract that contains onerous terms (like a restrictive termination provision) is signed  after the employee’s first day of work, it will be unenforceable for lack of consideration.
  • Give employees time to review the agreement. It is important to provide the contract to the employee several days or a week prior to his or her start date, in order for the employee to review it and seek independent advice if he or she sees fit.
  • All important terms and conditions should be included in the employment contract. If terms have been agreed to orally, those should be reduced to writing. It is advisable to include an “entire agreement” clause in the contract, so that the employee cannot argue that other binding terms not included in the contract exist.
  • If there is reference to terms and conditions found in other documents such as employment policies, a Code of Conduct, or Confidentiality and Non-Disclosure agreement, those documents should be attached to the employment contract.
  • Use clear, explicit and detailed language, as ambiguity will be interpreted in favour of the employee, and not the employer- the drafter of the contract (the contra proferentem rule).
  • Bring onerous clauses (e.g., termination clauses) to the attention of the employee when the employment contract is presented to the employee. In addition, it is wise to provide employees with the opportunity to seek independent legal advice prior to signing the contract. An employment contract is more likely to be enforceable if the employee reviewed it, or at a minimum was given the opportunity to review it, with a lawyer.
  • Beware of imposing an employment contract on an existing employee. New terms and conditions can be implemented with the agreement of an employee who has already started working, but fresh consideration is required. For example, if the employer seeks to include a non-competition provision in an employment agreement with an existing employee, additional consideration should be provided to the employee, for example, in the form of a bonus or increased compensation, or the new contract terms should be implemented at the time of a promotion. The consideration should not be an amount or benefit that would be provided to the employee in the normal course. Alternatively, new terms and conditions can be imposed on existing employees, if reasonable notice is given.
  • Finally, termination clauses must stand up to scrutiny. In employment law there is a “rebuttable presumption” that an employee is entitled to common law reasonable notice, unless a more restrictive written termination provision exists. In order to be enforceable, a termination clause must be included in the employment contract (not just in a policy), must be clearly worded and unambiguous, and must meet or exceed employment standards minimums.

Reducing terms and conditions to a written agreement has the benefit of avoiding costly disputes down the road if the above principles are observed.

Author

Jennifer Fantini
Toronto
416.367.6726
JFantini@blg.com

 

Reinstatement: An Illustration of the Wide Remedial Powers of Human Rights  Tribunals

The purpose of human rights legislation is to restore a complainant to the position he or she would have been in but for the discriminatory treatment. In seeking to achieve this, human rights tribunals across Canada have the authority to award non-monetary remedies, in addition to monetary remedies, that may have significant consequences for an employer. This wide remedial power was recently displayed by the Ontario Human Rights Tribunal in Fair v. Hamilton-Wentworth District School Board1, in which the Tribunal ordered that the applicant employee be reinstated almost a decade after her employment was terminated by the employer.

The applicant held the position of Supervisor, Regulated Substances, Asbestos. In Fall 2001, she developed a generalized anxiety disorder and was subsequently diagnosed with depression and post-traumatic stress disorder resulting from a fear that she would make a mistake and face personal liability for a breach of the Ontario Occupational Health and Safety Act. After going on long-term disability benefits, she was assessed as capable of gainful employment in 2003 but the employer determined that it was unable to accommodate her disability and she was terminated when her LTD benefits ended in 2004. The Tribunal disagreed with the employer, finding that the employer failed to take adequate steps to canvas possible solutions to her need for accommodation. The Tribunal concluded that the employer should have sought clarification of the medical evidence it relied on  and the employer had positions available that the applicant was suitable for.

The applicant sought, as part of her remedies, to be reinstated, not having been able to secure suitable alternative employment since being terminated by the School Board. In an unexpected move, the Tribunal agreed that reinstatement was an appropriate remedy in the circumstances and found that it would not create a hardship for the employer, despite the very long passage of time. In coming to this conclusion, the Tribunal held  that the applicant would have still been employed by the School Board if not for the discrimination and considered that those who were responsible for making the original decisions were no longer working for the employer. In addition to reinstatement, the Tribunal also ordered, among other things, that the employer pay the employee close to 10 years of lost wages and $30,000 for injury to dignity, feelings and self-respect. This case is being judicially reviewed, but serves as an important reminder to employers of the potential costs and risks associated with discrimination in the workplace.

An order for reinstatement can be very costly and often creates difficulties for an employer; however, this will not necessarily preclude the human rights tribunal from applying this remedy in the event of discrimination. Some factors that are commonly considered in determining whether reinstatement is an appropriate remedy include:

  • the effect it may have on other employees
  • whether there is animosity between the parties
  • the status of trust between the parties
  • risk that there has been irreparable harm to the employment relationship
  • the size of the work environment
  • the existence of any other barriers to reinstatement

Reinstatement is not a remedy commonly ordered by human rights tribunals, especially in the case of a non-union employee and after a long gap in time. Nonetheless, this is not the first time reinstatement has been ordered by a human rights tribunal following a period of delay. In Kalyn v. Vancouver Island Health Authority (No. 3)2, the British Columbia Human Rights Tribunal ordered the employer to reinstate a former employee almost two years after she had been terminated. The employer had found that she had committed a breach of confidentiality and was gossiping and terminated her employment. The Tribunal saw things differently, concluding that the employee’s sex was a factor in the decision to terminate her, and ordered that the employer reinstate  the employee to her former position despite the fact that her position had already been filled by someone else.

Although reinstatement is a rare remedy, these cases highlight the extensive remedial powers available to human rights tribunals across Canada and the significant consequences, both monetary and non-monetary, that an employer may face in discrimination claims. Employers are encouraged to treat all complaints of discrimination seriously and ensure all possible accommodation options are promptly and diligently considered before making the decision to terminate an employee. Failure to do so may cost an employer a lot, even many years later.

Author

Lisa Carlson
Vancouver
604.632.3521
LCarlson@blg.com


1 2013 HRTO 440

2 2008 BCHRT 377

 

Québec Law: The Top 10 Reasons Not to Prematurely Terminate an Employment  Relationship

When faced with difficult employment situations, employers can sometimes act hastily, including opting to quickly end their employment relationships with “problem” employees.

It is important to note however that reacting rapidly can be costly, specifically in cases where the employee in question challenges his or her termination before a tribunal on the grounds that he or she was terminated without just cause.

An employee can be awarded a sum of money to compensate him or her for the manner in which he or she was terminated. Furthermore, unlike most courts in common law jurisdictions, Quebec tribunals have the power to re-instate an employee who has been terminated.

Quebec employers are encouraged to examine whether they have abided by the following labour and employment guidelines prior to terminating an employment relationship (many of these guidelines also apply in common law jurisdictions).

1. Disciplinary sanctions must be progressive

  • When applying a disciplinary sanction, one must remember that the ultimate purpose is to rehabilitate the employee.
  • The process must be comprised of an official reprimand (preferably in writing) and at least one or more suspensions before considering a dismissal.
  • The sanction should be proportional to the fault.

2. An employee should always be granted an opportunity to respond to any allegations

  • In a case of wrongful terminations, tribunals will consider the absence of such an opportunity

3. Serious fault or gross misconduct does not necessarily justify a dismissal

  • It is important to consider each case on a factual/contextual basis when determining whether the fault is just cause for dismissal.

4. The line between a resignation and dismissal can blur

  • An employer should be cautious and its assumption should rest on extensive and precise evidence pointing towards an employee’s clear intention to resign.
  • The resignation must be express and done with free and informed consent.
5. The situation may be categorized as a constructive dismissal

 

  • A substantial change to an employee’s essential employment conditions (tasks, salary, etc.) may be found to be a constructive dismissal.
  • In the case of a resignation pursuant to such a change, an employer may rightfully object to an allegation of constructive dismissal by demonstrating that it provided the employee with reasonable notice with regard to the implementation of the change.

6. Some situations require a duty to accommodate

  • Various scenarios may create a duty to accommodate  including: pregnancy, handicap (including substance dependencies), and gender.

7. Steps must be taken prior to a termination for incompetence

  • The employer should start by implementing a performance improvement plan (“P.I.P.”)

8. Termination of the employment relationship may render the non-compete agreement inapplicable

  • A non-compete clause will only be enforceable if the employee willingly resigned or was dismissed for a serious reason.

9. Employees may have a recourse for termination without cause

  • Employees with at least two (2) years of service are entitled to statutory recourses for termination without just cause.
  • However, even employees with less than two (2) years of service may benefit from various recourses pursuant to legislation other than labour and employment statutes, such as Quebec’s Charter of human rights and freedoms.

10. An employer’s emotional and impulsive actions may be costly

  • Employers who dismiss an employee in an abusive, cavalier or humiliating manner may face reparation costs.

The above reasons reinforce that care should be taken when dismissing employees in Quebec. Not only the reason for the dismissal, but the timing and manner are important.

Authors

Maria Valente-Fernandes
Montreal
514.954.2559
MValenteFernandes@blg.com

Justine Laurier
Montreal
514.954.2558
JLaurier@blg.com

 

U.S. Supreme Court Re-Affirms Class Action Waivers in Arbitration  Agreements

Court Rejects ‘Effective Vindication’ of Statutory Rights as Reason to Invalidate Consent to Individual Arbitration. Again applying the Federal Arbitration Act (“FAA”) to uphold agreements requiring parties to arbitrate their disputes rather than litigate them in court, the U.S Supreme Court has held that the FAA prohibits courts from invalidating a contractual waiver of class arbitration because the cost of arbitrating a federal statutory claim individually exceeds the potential recovery, even if the effect of enforcing the waiver is to prevent the claim from being brought3.

Facts

A group of retail merchants who accept American Express personal and corporate charge cards alleged that American Express used its market power in corporate and personal charge cards to impose an “Honor All Cards” policy, pursuant to which merchants were required to accept the full range of American Express cards, including revolving credit cards and debit cards, as a condition to being able to accept the traditional American Express charge cards. The plaintiffs alleged that this requirement constituted an illegal tying agreement under Section 1 of the Sherman Antitrust Act. The merchants said this injured them as a result of the higher fees they had to pay on sales paid for with American Express credit and debit cards as compared to lower fees charged by “mass-market” credit cards, such as Visa and MasterCard.

A mandatory arbitration clause in the American Express Card Acceptance Agreement contained a class arbitration waiver, requiring all disputes to be arbitrated on an individual basis. The plaintiff merchants nevertheless brought a class action in federal district court. American Express moved to compel arbitration. Opposing this move, the plaintiffs argued that the class action waiver was unenforceable because the cost of prosecuting an individual antitrust action would be prohibitively expensive in light of the relatively small potential recovery to any individual merchant, and therefore, they could not “effectively vindicate” their statutory rights. The district court granted the motion to compel arbitration and dismissed the lawsuit, ruling the antitrust laws’ provision for treble damages and the recovery of attorneys’ fees provided sufficient incentive to pursue arbitration on an individual basis.

On appeal, the U.S. Court of Appeals for the Second Circuit reversed and, in three separate opinions issued over a four-year period, held the class action waiver was unenforceable. In its  first opinion, the Second Circuit held that despite the strong federal policy in favour of arbitration, agreements to arbitrate federal statutory claims are enforceable only if the litigant may vindicate the statutory claim effectively in the arbitral forum. The Second Circuit ruled the plaintiffs had met their burden of showing that proceeding in individual arbitration would be cost-prohibitive. Its decision was based on the undisputed declaration of the plaintiffs’ economic expert witness that the cost of preparing an expert report and testimony necessary to prove the plaintiffs’ antitrust claims would be at least several hundred thousand dollars and could exceed $1 million, while the maximum damages any individual plaintiff could expect was less than $40,000 after trebling damages. Applying the effective-vindication rule, the Second Circuit held the class action waiver was unenforceable.

Supreme Court’s Decision

The Supreme Court reversed in a 5-3 opinion written by Justice Antonin Scalia. The Court reiterated that arbitration is a matter of contract and that the FAA requires arbitration agreements be “rigorously enforced” according to their terms, even for claims alleging a violation of a federal statute, unless Congress has provided otherwise. Applying this precept, the Court analyzed two grounds the Second Circuit had relied on to invalidate the class action waiver.

First, the Court rejected the argument that enforcing the class action waiver would contravene the policies of the antitrust laws. The antitrust  laws, it said, contain certain provisions to encourage plaintiffs to bring such claims (primarily, the provision for the recovery of treble damages), but they do not evince any intention to preclude class action waivers. Indeed, the Court noted, the Sherman and Clayton Acts were enacted decades before the adoption of Rule 23 of the Federal Rules of Civil Procedure, which made the class action procedure generally available. In short, the Court stated, “[T]he antitrust laws do not guarantee an affordable procedural path to the vindication of every claim.”

Second, the Court rejected the effective-vindication rule as a basis to invalidate class action waivers. It characterized the rule as a “judge-made exception to the FAA” crafted to prevent a “prospective waiver of a party’s right to pursue statutory remedies.” Mitsubishi Motors Corp. v. Soler-Chrysler-Plymouth, Inc.4, (emphasis added). In the Court’s view, a class action waiver did not eliminate the right to pursue statutory remedies, even if the cost of proving entitlement to such remedies was prohibitive. The Court stated, “The class action waiver merely limits arbitration to  the two contracting parties. It no more eliminates those parties’ right to pursue their statutory remedy than did federal law before its adoption of the class action for legal relief in 1938 ... Or to put it differently, the individual suit that was considered adequate to assure the ‘effective vindication’ of a federal right before adoption of class-action procedures did not suddenly become ‘ineffective vindication’ upon their adoption.” Citing Concepcion, the Court rejected the proposition that class proceedings were necessary to prosecute claims “that might otherwise slip through the legal system.”

The Court recognized that an arbitration agreement expressly waiving federal statutory remedies  would constitute a prospective waiver of “the right to pursue” such remedies (and therefore, presumably, would be invalid), as “perhaps” would be prohibitively expensive arbitration fees.

The Court concluded by observing that adopting the effective-vindication rule would require courts to analyze the enforceability of class action waivers on a case-by-case basis. The parties would have to litigate what evidence was necessary to meet the legal requirements of each claim and the cost of developing that evidence, and then compare those costs to the damages that could be recovered if the plaintiffs were to prevail on the issue of liability. The FAA foreclosed the imposition of such a “hurdle” to the enforcement of class action waivers, the Court said.

Implications

Despite the Supreme Court’s previous strong pronouncements in favour of enforcing arbitration agreements according to their terms, a significant limitation on the enforcement of class action waivers remained: the effective-vindication rule. With American Express, that limitation largely has been eliminated. Challenges to the enforceability of arbitration agreements will continue to be made, but most likely on narrower grounds, such as those mentioned by the Court: lack of contract formation, excessive arbitration fees, and other unfair or overreaching provisions, and improper limitations on the right to pursue statutory rights or remedies otherwise available in litigation.

Author

Jackson Lewis LLP
Park Center Plaza I, Suite 400
6100 Oak Tree Blvd.
Cleveland, OH 44131
USA
216.750.0404


3 American Express Co. v. Italian Colors Restaurant, (No. 12-133 June 20, 2013)

4 473 U.S. 614, 637 (1985)

Authors

Jennifer M. Fantini 
JFantini@blg.com
604.640.4247

Naomi Calla 
NCalla@blg.com
416.367.6129

Lisa Carlson 
LCarlson@blg.com
604.632.3521

Maria Valente-Fernandes 
MValenteFernandes@blg.com
514.954.2559

Justine B. Laurier 
JLaurier@blg.com
514.954.2558

Expertise

Labour and Employment
Labour and Employment Law
Business Immigration
Pension and Benefits