In Ontario, an employee can be dismissed in one of two ways:
- Termination for cause; or
- 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:
- 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
- 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:
- 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
- The length of employment. Generally, the longer the duration of employment, the longer the notice period;
- The age of the employee at termination. A longer notice period will usually be justified for older long-term employees; and
- 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;
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 email@example.com.
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, , 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.
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 firstname.lastname@example.org.
Authors: Syrah Y. Yusuf, Alvin W. Leung, and Tiana Terrigno
What is Probate?
To put it in the simplest terms, Probate is the Court Process by which a Will is authenticated, and through it an executor is issue a “Certificate of Appointment of Estate Trustee with a Will”. This certificate gives the executor the authority to act on behalf of the estate.
It is essentially an approval process that checks to determine whether your Will is valid and confirms the appointment of the Estate Trustee that you have chosen. Without a Certificate of Appointment, the Estate Trustee may run into issues when they attempt to transfer the assets as per your instructions on the Will.
Why does this matter to me?
It is likely that you stumbled across this blog specifically searching for the word “Probate”. This process is important for the Estate Trustee of an Estate, as well as individuals completing or revising their Will for effective tax planning purposes. Understanding the process of probate will go a long way in allowing the beneficiaries of your Estate to inherit a more valuable estate.
There is a cost associated with probating a Will. This is called the Estate Administration Tax in Ontario, also sometimes lovingly referred to as “Probate Fees”. It is important to note that Estate Administration Tax and income tax is not the same thing. Upon death, the executor of the Will is responsible for accurately reporting your assets for Estates Administration Tax and Income Tax purposes. While this article may touch upon Income Tax issues, the information presented here is focused on the Estate Administration Tax.
With regards to the Estate Administration Tax, the current rates in Ontario are:
- $5 for each $1,000, or part thereof, of the first $50,000 of the value of the estate, and
- $15 for each $1,000, or part thereof, of the value of the estate exceeding $50,000.
There is no Estate Administration Tax due if the total value of the estate is less than $1,000.
You can find a handy Estates Administration Tax calculator here: https://www.attorneygeneral.jus.gov.on.ca/english/estates/calculate.php
Can I avoid paying the fees?
While it is unlikely that you can avoid paying Estate Administration Tax completely, you can minimize Estate Administration Tax by carefully planning how you want to distribute your assets. This is because not all of your assets necessarily need to go through the probate process.
Obviously, a commercial bank will not transfer your entire life savings without some sort of assurance that the Executor of the Estate is who they say they are. However, less valuable assets, such as your vehicle, may be transferable without a Certificate of Appointment to your executor through Service Ontario.
Listed below are some of the ways you can try to minimize Estate Administration Tax. It is important to know that the methods as described below carry significant legal consequences, so we highly recommend you speak to a lawyer before attempting to do this yourself.
- Name beneficiaries in your Life Insurance Plan and/or Registered Accounts.
If you name a beneficiary for your life insurance plan or registered savings plans such as RRIFs or RRSPs, it is possible to bypass probate by directly passing the assets in those plans to your beneficiaries. While your beneficiaries will still be responsible to accurately report the amount for Income Tax purposes, this will allow you to avoid the Estate Administration Tax.
- Joint Ownership of Assets
If the title to a specific asset is jointly owned by you and someone else, such as your spouse, the survivor will automatically receive the title of the asset upon your death. This allows you to bypass probate, as the survivor will have full ownership of the specific asset, and there is no need to prove their right of ownership.
In some provinces, like Ontario, it is possible to have more than one Will. How this usually works is that one Will can be used to distribute assets that will require probate, and the second Will can be used to distribute assets that does not require probate. It is important that the Will is carefully worded so that the there are no conflicts between the two Wills.
This method has been tested in court. In Granovesky Estate v. Ontario, the deceased left two Wills: a Primary Will to deal with assets that required probate, and a Secondary Will to deal with assets that did not require probate.
The court decided that there was no prohibition against asking the court for a limited grant of a Certificate of Appointment on the Primary Will (and all the assets included in it). Furthermore, there was no requirement for the Estate Trustee to submit the deceased’s secondary Will to probate or to pay Probate Fees (as it was called then) on the value of assets listed on the Secondary Will.
If you wish, you can set up a private company or trust to own your assets to avoid the probate process. This is commonly used for Income Tax planning purposes for large estates to minimize the Income Tax paid on the Estate. As this gets fairly complex, we recommend you speak to your lawyer about the costs associated with creating a trust or company. The costs associated with this method may be more than the Estate Administration Tax itself, so avoiding the Estate Administration Tax should not be your sole reason to set up a private company or trust for your Estate.
Every Estate is unique, and different methods will work better for different individuals. Erudite Law can guide you through the probate process and work with you to discover the right plan, allowing you to leave a more valuable estate for your loved ones.
For more information with regards to probating a will, or Wills and Estates in general, please do not hesitate to reach out to us by phone at 905-471-6161 or email us at email@example.com.
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
- Special Funds
- Improved Record Keeping
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.
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.
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.
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 firstname.lastname@example.org or 905-471-6161.
— B. Brillantes, Student Intern at Erudite Law LLP