by Alvin Leung | Jul 23, 2021 | Blog Post, Contracts, Employment Law
Last year, the Ontario Court of Appeal in Waksdale v. Swegon North America Inc., 2020 ONCA 391, slapped employers across the face causing an upheaval in employment law, resulting in the possibility that your employment contract might no longer be enforceable. Specifically, employers may be required to review and revise their termination provisions with their employees, otherwise, upon termination, the employer may find themselves paying a lot more to the employee than anticipated.
In Waksdale, the employer terminated Mr. Waksdale “without cause”. Pursuant to his employment agreement with the employer, the termination clause provided that the employer only had to pay him the minimum statutory entitlement set out in the Employment Standards Act. Mr. Waksdale was only employed for eight (8) months, thus under the ESA, he was only entitled to one (1) week pay-in-lieu of notice. Rather than accept this, Mr. Waksdale brought an action against his employer for six (6) months pay-in-lieu of notice under common law.
At trial, counsel for Mr. Waksdale argued that the termination clause was void, and thus the employment contract was unenforceable. Specifically, that a separate “termination for just cause” clause elsewhere in the employment agreement contravened Regulation 288/01 of the ESA Regulations. The Ontario Court of Appeal agreed and held that the wording in the “termination for just cause” section was inconsistent with the ESA Regulation, and that alone voided the remaining termination provisions in the employment contract.
“That’s Fine, I have a Severability Clause” No, apparently it is not fine. Despite the employment agreement in Waksdale having a severability clause, the Court of Appeal declined to apply it since it would not have any effect on a contract term which was void by statute.
What Is Just Cause Then?
The Courts have held that “just cause” includes actions where an employer can terminate an employee without paying reasonable notice at common law. These include actions by the employee such as dishonest conduct, insubordination, violence, sexual harassment, harassment, repeated breached of employee policies etc. However, even though the employee is not entitled to common law reasonable notice, they still entitled to be paid ESA notice and severance.
Employers may only terminate an employee without pay where the employee has been guilty of, “wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.” In order for your employment agreement to be enforceable, it must explicitly distinguish between termination for “just cause” and termination for “wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.” Because of the decision in Waksdale, your “termination without cause” clause may also be unenforceable, and that the termination provisions in an employment agreement must be read as a whole to determine whether it violates the ESA, rather than on a piecemeal basis.
Revising Your Employment Agreements
As a result of the decision in Waksdale, as an employer, you should consider immediately reviewing your existing employment agreements to ensure that they are in compliance with the ESA.
In the event that the employment agreement violates the ESA, you should consider entering into a new employment agreement with an enforceable termination clause. However, you must always remember that if you are amending the employment agreement, you must offer fresh consideration such as pay increase, bonus, promotions, additional vacation time, or some other benefit to the employee.
To find out more about how to protect yourself or if you need assistance navigating your employment agreement, contact us by phone at 905-471-6161 or email us at info@eruditelaw.com.
by Alvin Leung | Jul 20, 2021 | Blog Post, Employment Law
To begin, it is important to note that an employer cannot require an employee to be vaccinated for COVID-19. The federal and provincial governments have not made it mandatory for all people to be vaccinated; as such, an employer’s workplace policies cannot make it mandatory.
KEY TAKEAWAYS
• Employers cannot require employees to be vaccinated.
• Employers may ask if an employee has been vaccinated.
• Employers must be mindful of privacy and human rights concerns.
However, an employer may ask an employee if they have been vaccinated. And while this may be regarded as a violation of privacy rights, an employer has an obligation under law to maintain a safe workplace. This obligation overrides any privacy concerns. Having knowledge of which employees have been vaccinated can help an employer determine, among other things, how to assign duties and roles, and which employees are best suited for face-to-face contact with clients. Safety, not only for employees, but for customers as well, is a chief concern for employers who wish to avoid potentially serious liability. Interacting with employees that either lie about or do not wish to disclose their vaccination status or dealing with customers who sue because they contracted COVID-19 after interacting with an infected employee are but a few of the new challenges that businesses are faced with. Thus, it is crucial for an employer to know whether an employee has received any of the recommended vaccination shots.
When collecting such personal information from employees, employers should clearly communicate their reasons, and are advised to be reasonable in their approach, gathering only the amount of information that is necessary. More importantly, an employer must avoid creating a workplace in which non-vaccinated employees are stigmatized, harassed, or bullied. Employers must be mindful that some of their workers may have legitimate reasons for not getting vaccinated – reasons which may be protected under human rights law (e.g., medical or religious reasons).
The collected information is to be kept private and cannot be shared without the consent of the employee. For example, as businesses across Ontario begin to open up, customers may ask about the vaccination status of certain employees, particularly in the hospitality, personal care, and retail sectors. An employer must be cautious not to divulge the personal information of employees that have not consented.
The new COVID-19 landscape is forcing companies to adjust their workplace policies. Moreover, it is forcing business owners to ask uniquely tough questions. For example, can an employer require a new hire to be vaccinated? Can employees be incentivized to get vaccinated? What is the extent of the duty to accommodate and how does it apply to employees who refuse to get vaccinated?
Whether you are an employer or an employee, we would be glad to go into further detail on these recent issues and address any of your concerns.
Feel free to send us an e-mail at info@eruditelaw.com or call us at 905-471-6161 to speak with one of our Employment Law and Civil Litigation practitioners.
Authors: Ben Brillantes
by Alvin Leung | Feb 9, 2018 | Blog Post, Income tax
Employee deductions and expenses as an owner-employee.
While employees at arms-length have been permitted to deduct certain employment expenses pursuant to section 8 of the Income Tax Act, the Canada Revenue Agency has taken issue with employees who are also shareholders of the corporate employer. That is, employees who are sole directors, shareholders and officers of the corporation have been increasingly scrutinized by the CRA.
Back in 2009, the case of Adler v. R, 2009 TCC 613 (informal procedure), the Tax Court of Canada held that since the appellant was the sole officer, director and shareholder of his employer, a refusal to incur the job related expenditures would yield no adverse consequences for him. On the basis of this reasoning, the Court dismissed the appeal.
-
So can I deduct my employment expenses?
It is arguable that this case should be limited to its facts and possibly not applicable in all situations. Firstly, the decision in Adler is silent on whether there was an employment contract in place explicitly requiring the employee to incur certain costs. Secondly, the Courts interpretation of “adverse consequences” is quite narrow indeed, appearing to be limited to an action for breach of contract, disciplinary action, and / or poor performance review – quite simply, this cannot be true as there may be negative financial consequences such as lost profits, inability to meet third party obligations, or the inability to pay salary to arms length employees.
-
What is required before I deduct employment expenses?
One thing is certain, section 8 of the ITA details some specific requirements before any employee can deduct certain employee expenses – among other things, a good starting point is to always have an employment contract with specific provisions detailing what are the requirements of the job is and what expenses the employee may be responsible for without reimbursement.
If you are a sole director, shareholder, and officer of a corporation and are considering becoming an employee of your corporation, let the lawyers at Erudite Law LLP assist you in reviewing your options. Please feel free to contact us – https://eruditelaw.com/#contact.
by Alvin Leung | Jan 31, 2018 | Blog Post, Contracts
We all encounter contracts day in and day out in our personal lives. Often, such as with the iTunes terms and conditions, we do not even bother to read them before we hit “I accept”. The importance of clear and carefully drafted contracts cannot be overstated.
What should I be looking for in my contracts?
1. The Parties being bound by the contract are clearly defined.
2. The roles, or promises, of each Party are clearly stated.
3. The contract clearly sets out how to tell if a Parties isn’t fulfilling their end of the bargain.
i.e. What constitutes a “breach” of the contract?
4. The contract clearly states what will happen if a Party “breaches” the contract.
5. The “Term” of the contract is clearly defined.
How long will the contract last? This can be based on the completion of a certain task, or the termination of a certain event or be a set amount of time.
6. The contract clearly describes how, and for what reasons, a Party can terminate the contract before the “Term” is over.
7. The contract states what laws govern the contract.
For example, if you are from Toronto contracting with someone in Montreal, does the contract state whether the laws of Ontario or Quebec govern the transaction?
What are some of the pitfalls of bad contracts?
The contract may not be enforceable.
The point of a contract is to:
- clearly set out the intention of the Parties; and
- to make sure that the Parties do what they are supposed to.
If your contract turns out to be unenforceable, then you lose half the utility of your contract!
Expensive Litigation.
Ambiguous terms and conditions in a contract, where it becomes difficult to determine what the Parties intended, can lead to a breakdown of the relationship between the Parties as time goes on. This can lead to expensive and time consuming litigation.
Conclusion
As you can see, you can incur significant legal fees trying to correct a badly drafted contract or trying to enforce a poorly drafted contract. As small business advisors at Erudite Law LLP, we consistently try and stress this to our clients. By having a contract correctly drafted by a lawyer, you may save yourself the time, stress and money of trying to correct something that should have been doing correctly from the start.
If you wish to have your contract reviewed, contact the lawyers at Erudite Law LLP by email at info@eruditelaw.com or call us at 905-471-6161.
by Alvin Leung | Oct 23, 2017 | Blog Post
Many business owners decide to incorporate, as they grow, to take advantage of the numerous benefits of incorporation. What fewer business owners are aware of is that if members of certain professions decide to incorporate in order to render their professional services, they are often required to do so as professional corporations.
These professional corporations differ in a few major ways from regular provincially incorporated corporations, which are discussed below. Some eligible professions would include accountants, architects, dentists, doctors, engineers, lawyers, pharmacists, social workers, and veterinarians.
What is the difference between a professional corporation and a non-professional corporation?
Professional corporations differ from non-professional corporations in a number of ways.
One key distinction is that professionals of professional corporations are often subject to legislation that governs their specific profession. For example, social workers in Ontario are regulated by the Social Work and Social Service Work Act, and veterinarians by the Veterinarians Act. This effectively means that in addition to being governed by the Business Corporations Act, a professional corporation is also subject to the laws of these profession governing acts.
A second distinction is in the classifications of shareholders either type of corporation can have. For instance, a business owner of a non-professional corporation can elect anyone as a shareholder. On the other hand, for many professional corporations, only licensed individuals of the same regulated profession may be shareholders. There are, however, some professions that will allow immediate family members to hold shares in the professional corporation subject to certain conditions. To illustrate, doctors in Ontario can issue shares to immediate family members, provided that these shares are designated as non-voting shares.
Another notable difference has to do with liability. Shareholders in a non-professional corporation are only at risk of losing what they invested in the company, meaning that, except for a few exceptions, their personal assets are protected. Part VII of Ontario’s Business Corporations Act (the “Act”) Section 92 (1) states:
“The shareholders of a corporation are not, as shareholders, liable for any act, default, obligation or liability of the corporation except under subsections 34(5), 108(5) and 130(5) and section 243.”
As for professional corporations, however, the same cannot be said. For instance, if a doctor providing services through a professional corporation were to be sued for malpractice, the doctor may be personally held liable. Section 3.4(1) in the Act states this clearly:
“Subsection 92(1) shall not be construed as limiting the professional liability of a shareholder of a professional corporation under an Act governing the profession for acts of the shareholder or acts of employees or agents of the corporation.”
What are the benefits then of starting a professional corporation?
Despite not offering the same limit on liability as a non-professional corporation, professional corporations still carry numerous advantages. Below is a list of some of the benefits:
- Income Splitting
- Reduced Tax Rates
- Deductions
- Special Funds
- Improved Record Keeping
Income Splitting
Income splitting is the act of transferring income between immediate family members. The purpose is to bring down the overall tax burden that the family member making the highest income would otherwise have to face. Furthermore, in bringing income levels down to a lower tax bracket, a family may be able to take advantage of a host of deductions and credits. This is not available for all professional corporations.
Income splitting through a corporation can prove to be very beneficial over the long term. Here, we will provide a simple example that focuses solely on regulated professionals.
Imagine Dr. Anderson, a physician, made $200,000 though her professional corporation. She can then decide the salary she would like to be issued from the professional corporation. In addition, since her profession allows it, she can distribute dividends to her husband, who holds non-voting shares in the professional corporation (and who, for this scenario, had a tough year as a writer and did not generate an adequate income).
The $200,000 in earnings that Dr. Anderson made through her incorporated practice are being taxed at the corporate rate, which is below 20%. Without her corporation, the $200,000 would be taxed at the personal rate, which hovers around 50%.
Third, the dividends issued to her husband are taxed at the lower “capital gains” rate, and not at the level of “personal income tax.” In other words, through professional corporations, families can all help each other out through the strategic distribution of income. This is why the government considers this maneuver as a form of income splitting.
Reduced Tax Rate
On the first $500,000 of business income, professional corporations in Ontario have the advantage of being taxed at the reduced corporate rate of 19.5%. This is known as the “small business deduction.” As already stated above, corporate tax rates are significantly lower, and thus, preferable to personal tax rates.
Deductions
Deducting the expense of a bonus is another advantage that professional corporations have. Bonuses can be deducted by a professional corporation, so long as the bonus was paid out within the fiscal year.
On top of making deductions from bonuses, a professional that operates a corporation can also deduct the costs of attending over two business conventions annually. The only requirement is that the conventions are related to his or her actual practice. Compare this to non-professional corporations, which are limited to making cost deductions on only two business conventions.
Special Funds
Professional corporations come with the added benefit of giving regulated professionals the chance to set up special funds and financial plans for themselves and their workers. For instance, a professional corporation can own its own group and life insurance policies. This would give the owner of the professional corporation the ability to pay premiums out of pre-tax income (which, in turn, lowers the corporation’s overall taxable income).
Professional corporations also give professionals in their later stages in life the opportunity to set up individual pension plans similar to the specialized ones that public service workers have. Such a pension plan could provide more tax deferred savings than under a Registered Retirement Savings Plan (i.e. RRSP). This is because the individual pension plans of incorporated professionals have higher contribution limits than regular RRSPs, allowing for a greater accumulation of retirement savings. Also, not only can the employer of the professional corporation deduct contributions, but the pension benefits are also protected from creditors.
Improved Record Keeping
A professional corporation requires a separate bank account, a special letterhead, unique business cards, corporate financial statements, and annual tax return filings, to name a few. And while these requirements may seem rather onerous, the fact is that professional corporations encourage better bookkeeping overall, as they make it much more difficult to mix up personal financial records with those of business.
Conclusion
These are but a few of the benefits to be gained from managing and controlling your own professional corporation. To be sure, there are limitations, and for some, disadvantages to running a professional corporation. These points will be discussed in a future post.
For further information regarding professional corporations contact Erudite Law LLP at info@eruditelaw.com or 905-471-6161.
— B. Brillantes, Student Intern at Erudite Law LLP
