Termination of Employment: With Cause, Without Cause and Reasonable Notice

In Ontario, an employee can be dismissed in one of two ways:

  1. Termination for cause; or
  2. Termination without cause.

Termination for cause

When an employer terminates an employee for cause the employee will not be entitled to any compensation with regards to the dismissal. At law, this form of compensation is typically referred to as “reasonable notice”, “common law notice” or “termination pay”. Given that termination for cause is extremely prejudicial to the former employee, it has been labelled as being an extremely severe and punitive measure to be taken only in the most serious circumstances. As such, the courts have established a very high standard for an employer seeking to terminate an employee for cause.

Standards for terminating an employee with cause

There are two different standards that can be applied to determine if “just cause” for termination has been established:

  1. Under the Employment Standards Act: the employee was guilty of “wilful misconduct…that is not trivial and has not been condoned by the employer” ; or
  2. Under Common Law: the employee was guilty of basis prolonged incompetence and/or serious misconduct which led to “just cause” for termination.

The standard applied depends on whether or not there is an enforceable termination clause in the employment agreement.

If there is an enforceable, binding employment agreement, with an enforceable termination clause, that is in compliance with the Employment Standards Act, the standard of “willful misconduct” will apply. Alternatively, in the absence of an enforceable employment agreement, the common law standard of “just cause” will apply.

In the case of Plester v. PolyOne Canada Inc. 2011 ONSC 6068, the Ontario Superior Court of Justice made the following assertions on the difference between termination for cause under the Employment Standards Act (“wilful misconduct”) and at common law (“just cause”):

“Just cause involves a more objective test, albeit one that takes into account a contextual analysis and therefore has subjective elements. Wilful misconduct involves an assessment of subjective intent, almost akin to a special intent in criminal law.”

In summary, in order for an employer to terminate an employee under the Employment Standards Act, the employer will have to demonstrate that the employee intentionally engaged in serious misconduct. In the absence of an enforceable termination provision or an employment agreement, the burden to establish termination for cause at common law is lowered as the employer is only required to prove the act of serious misconduct.

Termination Without Cause

Termination without cause refers to when an employer terminates an employee without providing a reason for terminating the employee. To put it simply, termination for cause is when an employer dismisses an employee for reasons that are usually not related to serious workplace misconduct.

When an employee is dismissed without cause they are entitled to reasonable notice of termination – that being a reasonable amount of time in which the employee should be notified that their employment will be terminated.

What is reasonable notice?

There are two ways in which reasonable notice can be provided to the dismissed employee:

Working Notice – the amount of time the employee will working prior to the set termination date; or

Pay in lieu of Notice – payment equal to the amount of working notice the employee should have received.

Common law notice or statutory notice

The length of reasonable notice afforded to employees dismissed is determined by whether or not they are receiving statutory notice or common law notice. The length of statutory notice is determined by the Employment Standards Act, whereas common law notice is determined by evaluating several factors, which are discussed below.

Statutory notice is applicable when the employee has a valid employment agreement, with a valid termination clause, which limits the notice period to the notice period provided in the Employment Standards Act.

Reasonable notice under the Employment Standards Act

The reasonable notice periods under the Employment Standards Act are as follows:

Amount of notice required if an employee has been continuously employed for at least three months:

Period of employment                              Notice required

Less than 1 year                                                  1 week

1 year but less than 3 years                         2 weeks

3 years but less than 4 years                       3 weeks

4 years but less than 5 years                       4 weeks

5 years but less than 6 years                       5 weeks

6 years but less than 7 years                       6 weeks

7 years but less than 8 years                       7 weeks

8 years or more                                                   8 weeks

Reasonable notice requirements at common law

An employee who receives statutory notice may claim that they were wrongfully terminated as they did not receive sufficient notice and seek common law notice as the common law notice period is typically longer. An employee who is terminated without reasonable notice is entitled to damages for breach of contract asserted on the employment income the employee would have earned during the reasonable notice period. The length of reasonable notice is determined by the following principles as listed in the case of Paquette v. TeraGo Networks Inc., 2015 ONSC 4189:

  1. The character of employment. A longer notice period is provided for senior management or highly skilled and specialized employees and a shorter period is provided for lower rank or unspecialized employees
  2. The length of employment. Generally, the longer the duration of employment, the longer the notice period;
  3. The age of the employee at termination. A longer notice period will usually be justified for older long-term employees; and
  4. The availability of similar employment having regard to the experience, training and qualifications of the employee. Economic factors such as a downturn in the economy or in a particular industry or sector of the economy can also play a factor as they may indicate that an employee may have difficulty finding another position and may justify a longer notice period.

It is important to note that the determination of what period constitutes reasonable notice of termination is a principled art and not a mathematical science that turns on the particular facts of each case. There is no “right” figure for reasonable notice. Most cases yield a range of reasonable figures;

Conclusion

It is crucial for employers and employees alike to understand their rights and responsibilities as set out both in statute and in common law.

Employers should be cautious in drafting their employment agreements as particular language and reference to the Employment Standards Act is required to limit notice period to the statutory minimum. Invalid termination clauses can cause expensive litigation for both parties.

If you have questions regarding your employment contracts, whether or not you have been provided adequate notice, or any other employment issue contact by phone at 905-471-6161 or email us at info@eruditelaw.com.

Author: Julien Bonniere

COVID-19 and “Act of God” Force Majeure Clauses

COVID-19 and “Act of God” Force Majeure Clauses

COVID – 19 (Coronavirus) and Force Majeure or Act of God Clauses

As Ontario declares a State of Emergency and begins shutting down many businesses in light of the continued spread of COVID-19 across Ontario, many companies and individuals are left asking whether or not they are required to honour their contractual commitments.

The question we are being asked again and again, is whether or not COVID-19 can be deemed a force majeure event, specifically, whether COVID-19 constitutes an “Act of God” sufficient to discharge a party’s contractual obligations. Here are the essential questions that need to be considered in order to determine if COVID-19 affects your contractual obligations:

Does your contract have a “Force Majeure” or “Act of God” clause?

A thorough review of your contract is necessary to determine whether there is a clause which can be interpreted as a “Force Majeure/Act of God Clause”. In the absence of an express contractual term stating that a party will not be required to honour their obligations in the event of a Force Majeure event or an Act of God, to date, Canadian courts have been unlikely to interpret the contract to have an implied Force Majeure Clause. This is not to say, that in the aftermath of COVID-19, we may see changes to this in common law. However, as the situation currently stands, if you do not have an express Force Majeure/Act of God Clause, you should not rely on COVID-19 as a reason for not honouring your contractual commitments.

Does your Force Majeure/Act of God Clause Cover COVID-19?

If your contract contains a Force Majeure/Act of God Clause, then it must be determined if the clause applies to the circumstances surrounding COVID-19. The Force Majeure/Act of God Clause will typically list the specific events which will be covered by the clause.  If the clause does not specifically state “pandemic”, “disease” or something which can be applied to COVID-19, Canadian Judges may be required to rely on common law to determine if the clause covers COVID-19.

The Supreme Court of Canada, in Atlantic Paper Stock Ltd. v. St. Anne-Nack, [1976], was forced to do just that and held that the “common thread” in all the events listed in the clause was an event that is “unexpected, something beyond reasonable human foresight and skill” and applied the clause to an event which was not specifically named in Force Majeure/Act of God Clause as being covered as it fit this criterion.

Even if you intend to rely on a Force Majeure/Act of God Clause, it is important to note that you must always do your best to mitigate/reduce your damages, and take all reasonable steps you can to comply with your contractual obligations.  If an event can be mitigated, courts may consider the event to be one that is not beyond the control of the party.

What if your contract does not have a Force Majeure Clause, or your Force Majeure clause does not apply?

In the event that you cannot rely on a Force Majeure/Act of God Clause to discharge your obligations under a contract, you may be able to rely on the Doctrine of Frustration. Frustration of contract takes place when an unforeseen event, at the fault of neither party, significantly changes the nature of the parties’ obligations or abilities to perform the contract.

For example, you enter into an agreement to rent a property and the property burns down, at the fault of neither party. The purpose of this contract, to rent the property, is frustrated by the lack of a property to rent. As such, the parties cannot reasonable be expected to comply with their contractual obligations.

The onus is on the party seeking to rely on the force majeure clause to prove that the force majeure event has hindered, delayed or altogether prevented the performance of the contract.

Drafting Suggestions

The language used is key when drafting a Force Majeure clause in a contract. Parties who seek to broaden the scope of the clause, specifically regarding COVID-19 or other pandemics, should include phrases such as “communicable disease outbreak” rather than simply stating “epidemic” or “pandemic”.

On the other hand, parties may seek to limit the risk of COVID-19 triggering a Force Majeure event might consider implementing language that solely describes Force Majeure as an “act of God” with no additional events stated. With COVID-19’s long existence, people can better prepare, lowering the chances of an event being declared an “act of God” by the courts.

Further, the language of the contract should address the threshold of impact in clear language. Courts have found uncertainty occurs where a force majeure clause does not precisely define the impact required from the event.  As an example, “preventing” performance may be too strict of a standard, whereas “hindering” performance can be considered too lenient.

Lastly, in order to ensure the party seeking to rely on the clause notifies the other party, a notice provision must be drafted. This provision outlines the time within which notice must be given, the facts the notice must contain, and where the notice should be served.

It is important to note that many Canadians are being affected by COVID-19, we can all do our part to work together to reduce the financial burden on individuals and businesses. Some contracts can be delayed or extended by mutual agreement, and parties may choose not to enforce certain contractual provisions immediately.  We always strongly recommend seeking independent legal advice prior to taking any definitive actions with respect to your contracts.

To find out more about how to protect yourself or if you need assistance navigating your contracts, contact us by phone at 905-471-6161 or email us at info@eruditelaw.com.

Authors: Syrah Y. Yusuf, Alvin W. Leung, and Tiana Terrigno

What happens when your spouse dies (with or without a Will).

What happens when your spouse dies (with or without a Will).

When a spouse dies, individuals are often left unsure of their rights.  Whether there is a Will and you have been left with nothing, or there was no Will and you need to ensure that you get what you deserve, there is legislation in place to protect you.

1. What happens if your spouse dies with a Will?

Section 5 of the Family Law Act, states that when a spouse dies, the surviving spouse is entitled to an Equalization of the net family property. The practical effect of this is that the surviving spouse gets the share that they would have been entitled to if they had gotten divorced rather than if one spouse had died.

Section 6(1) of the Family Law Act presents the surviving spouse with a choice: where there is a Will, the surviving spouse can either take what they are given in the Will or decide to take what they are entitled to under Section 5 of the Family Law Act.

2. What happens if your spouse dies without a Will?

When a spouse dies without a Will, Part II of the Succession Law Reform Act states what a spouse is entitled to receive: a surviving spouse is entitled to receive the first $200,000.00 of the estate, this is called the “Preferential Share” of the Estate.  In addition to the Preferential Share, the surviving spouse is entitled to the following:

  • If 1 child: one-half of what is remaining after the Preferential Share (i.e. the “Residue”); and
  • If 2 or more children: one-third of the Residue

Section 6(2) again leaves the surviving spouse with a choice: where there is no Will the surviving spouse can either:

  • Elect to Equalize the net family property; or
  • Elect to take the Preferential Share plus their portion of the Residue.

3. Considerations for Common Law Spouses

It is important to note that this is not available to Common Law couples. As such Common Law couples should:

  • Make sure they have a Will in place; and/or
  • Sign a Cohabitation Agreement, which will specify how property will be dealt with in the event of the death of one spouse, and what the couple agrees will not happen.

4. Considerations for Separated Spouses

Furthermore, the above-mentioned elections are still applicable if the spouses have been separated for a length of time. As such it is important to either:

  • Get a legally binding Divorce, or
  • a legally binding Separation Agreement.

To find out more about how to protect yourself or your spouse contact us by phone at 905-471-6161 or email us at info@eruditelaw.com.

“Personal Use” Evictions and what you need to know

Those who are currently renting in the Greater Toronto Area know that it is very challenging to find good value in this market.

A study by the Canadian Mortgage and Housing Corporation (“CMHC”) shows that the vacancy rate of rental properties in the GTA is the lowest it has ever been in 16 years. With rental properties becoming more scarce in the GTA and the average cost of rent increasing, some landlords are looking to get around the 2.5 percent rent increase cap as prescribed by the Ontario Fair Housing Plan through creative means.

Personal Use Evictions

Procedure

The Residential Tenancies Act (“RTA”) governs non-commercial, residential tenancies.

According to the RTA, if the landlord requires the property for “personal use”, a landlord may apply to the Landlord Tenant Board (“LTB”) to terminate the tenancy and evict the tenant. Personal use involves use by the landlord, the landlord’s family member, or a person who provides or will provide care services to the landlord or the landlord’s family.

To initiate a personal use eviction, the landlord will file a “Notice to End your Tenancy”, and deliver it to the tenant. The termination date in the notice must be at least 60 days after the landlord provides the notice to the tenant.

If you have a month to month tenancy, the termination date must be on the last day of the rental period. In the alternative, if you have a fixed term tenancy, the termination date must be on or after the last day of the fixed term. An incorrect termination date would render the notice of termination defective.

Key Requirements to Note

In evicting the tenant for personal use, the landlord must be acting in good faith. The landlord must demonstrate to the LTB that the landlord (or the landlord’s family member) will indeed move into the unit within a reasonable time after the rental property becomes vacant.

The unit also must be used for “residential occupation” post eviction. For the most part, this means that the unit cannot be left empty, used as storage of items for the landlord, or be turned into a home office or study (a common occurrence for basement rental units).

Finally, for notices given after September 1, 2017, the landlord must compensate the tenant for eviction. This amount will be equal to one month’s rent. The compensation must be made before the termination date. In the alternative, the Landlord may also offer the tenant an acceptable alternate rental unit when terminating a tenancy based on own use, rather than paying an amount equivalent to one month’s rent.

Remedies

If the landlord terminated your tenancy in bad faith or otherwise, you could apply to the LTB for certain reliefs.

Amongst other things, the LTB can provide relief from eviction, a specified sum for increased rent that you may incur for one-year after vacating the rental unit, reasonable out-of-pocket moving expenses and more.

If you feel that your tenancy has been unfairly terminated, the lawyers at Erudite Law LLP may be able to help. Please drop us a line at http://Eruditelaw.com/#contact. We look forward to hearing from you!

By: Jimmie Z. Chen

Employment Expenses

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.

  1. 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.

  1. 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.

Small Business Contracts: What do you need to know?

Small Business Contracts: What do you need to know?

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.