Termination for Cause – High Threshold

We are often contacted by employees that have been terminated from their employment for cause.  Employers give any number of reasons to form the basis for a just cause dismissal; however, a Court will only uphold a decision to terminate an employer for just cause in the most extreme situations.

In many cases, where an employees performance is below average, if they have been subjected to limited discipline in the past, or if an employer policy indicates that they will be terminated for cause if you engage in “X, Y, or Z” behavior, the employer attempts to rely on these factors to justify a dismissal for cause.  Courts will assess the facts of each particular case and are not overly concerned with the specific employer policy.  Court precedent and its application to the particular case at bar determine whether there is just cause for termination; not the employer’s arbitrary policy.

It is critical that you consult an employment lawyer following a termination for cause to ensure your right are protected. At Goldstein Law, we offer a free consultation to assess your severance package and termination letter to determine whether the employer has provided for your full legal rights on the termination of employment.  Please contact us today for an employment law consultation.

Employment Considerations in the Sale of a Business

The liabilities of vendor and purchaser for employee entitlements upon termination can become a major issue in negotiating the sale of a business.

Section 64 governs statutory severance pay, which is payable only to an employee severed without cause, as defined, who has five or more years’ service and is either employed by an employer which has a payroll of $2.5 million or more or where there is a permanent discontinuance of all or part of the employer’s business at an establishment which results in 50 or more employees having their employment terminated within a six month period. Statutory severance pay is equal to one-week per completed and partial year of service, up to a maximum of 26 weeks.

Share Purchase Agreement

There is no termination of employment upon the sale of shares of a company.

Asset Purchase Agreement

Where a purchaser expressly recognizes past service in its new employment contract with the employee, no issue arises. An employer may make the choice to recognize past service in consideration for the valuable skills and experience it is receiving with a long-service employee. In the case of such an explicit recognition by the purchaser, the vendor would normally have no further liability at common law.

A purchaser can avoid liability for the employees’ prior service by requiring the vendor to provide common law reasonable notice of termination or pay in lieu thereof before the purchaser hires the employees.  Therefore, a purchaser wishing to try to insulate itself from employee termination liabilities should include a provision in the purchase and sale agreement requiring the vendor to provide reasonable notice of termination at common law, as well as require the vendor to indemnify it for any future termination payments for those employees, or at least for that portion of future termination payments attributable to the employees’ pre-sale service. Of course, if the purchaser declines to offer employment to the employees of the vendor, the vendor remains liable to the employees for common law reasonable notice.

Negotiating Business Purchase and Sale

As legal counsel for a purchaser, it is important to ensure that the vendor is contractually obliged to disclose as much information as possible about the employment aspects of the business and the age, tenure, compensation terms and character of employment of the employees. Potential common law and statutory employment liabilities must be considered in full and financially accounted for, through payment and/or indemnities, in any purchase and sale negotiation by both parties.

Severance Pay on the Purchase and Sale of a Business

Severance pay obligations to employees can be a substantial yet often overlooked obligation in the context of a purchase and sale of a business. Whether an asset sale or share sale, the vendor and purchaser must address severance pay issues before consummating a transaction. In this post, we will discuss some of the common structures that are employed in business transactions.

The manner of sale has an impact on where the obligations for severance pay reside. As such, we will start by assessing share sales vs. asset sales.

Share Transaction

When the shares of a company are sold, employees of the vendor are not terminated from their employment. The identity of the corporation does not change with the sale of shares; as such, the rights and obligations of the employer do not change unless the share purchase agreement specifically addresses these issues.

If the purchaser does not wish to take on the employees of the vendor, it must ensure in the share purchase agreement that the vendor is obligated to terminate the employment of those employees prior to sale and pay any required severance obligations. This will release the purchaser from any obligation to pay severance to employees of the company that they do not wish to keep on.

Asset Transaction

In the context of some or all of the assets of a corporation, other issues may arise. The contract of employment cannot be assigned from one employer to another. As such, upon the sale of a business, where the employment of the employee is not continued with the vendor, the contract of employment must be terminated and an employee can enter into a new contract with the purchaser. In this case, the employee relinquishes recognition of tenure or seniority with the previous employer.

If the employee declines an offer from the purchaser, they are deemed to have failed to mitigate their damages, negating a wrongful dismissal claim.

Recognizing Past Service

Where a purchaser in an asset transaction expressly recognizes the past service of the employee in its new employment contract, no issue arises. If the purchaser recognizes such service, the vendor would have no further liability.

Courts now generally presume that an employee will be credited for past service with the former employer for the purposes of calculating reasonable notice of termination unless an employment contract specifically indicates to the contrary.

How Do Purchasers Avoid Liability?

A purchaser can avoid liability for employees’ prior service and severance obligations by requiring the vendor to provide notice of termination before the purchaser hires the employees. In an agreement of purchase and sale, the purchaser should include an indemnification clause for any future termination payment for the employees, or the portion attributable to their pre-sale service.

In addition, the purchaser can advise the employee in a contract of employment that their years of service with the vendor will not be recognized.

A number of complex issues arise in the context of a purchase and sale of business specifically with respect to severance pay obligations to employees. If these matters are not sufficiently addressed, a business purchaser can be found liable for substantial obligations that were not accounted for at the time of purchase, thereby making the transaction uneconomical. Accordingly, it is important that severance pay issues are addressed prior to entering into a business purchase and sale.

Is Your Non-Competition or Non-Solicitation Clause Enforceable?

At Goldstein Law, we are a Toronto-based law firm that focuses on employment law. In the course of our employment law practice in Ontario, we frequently consult employers and employees on the drafting of employment contracts and the interpretation of various terms contained in employment contracts.  One of the recurring issues that we are retained to address is the enforceability of non-competition and non-solicitation clauses (also referred to as “restrictive covenants”).  After you are terminated from your employment, the last thing you want to do is “sit on the bench” and wait for a non-compete period to expire or risk a lawsuit for breach of the contract.

Conversely, employers often require these terms in their employment contracts to (1) protect confidential information that employees accumulate through their tenure of employment from being distributed freely to competitors; and (2) prevent the terminated employee from seeking out previous clients of the former employer, or colleagues, to leave and join a new venture.

In this post, we will define the terms “non-compete” and “non-solicit” and discuss some of the relevant factors that will determine whether your clause would be enforceable based on the common law in Ontario. Further, we provide employees with some practical advice in the event they are terminated from their employment and their previous employment contract contains a non-compete or non-solicitation clause.

What Is A Non-Competition Clause?

A clause that restricts an employees ability to join a competitor company or form a new business in the same or similar line of business to their employers. An example of a non-competition covenant in an employment contract of an employee that was terminated without cause from a consumer electronics store was drafted as follows:

Should you leave X company for any reason you shall not for a period of 6 months after the termination of your employment, without written permission, directly or indirectly, engage in any undertaking or business as an employee, principal, agent, or consultant with a Competitor. A “Competitor” includes a retail business operation in Canada which has as its principal business the sale of X. 

What is a Non-Solicitation Clause?

A clause in an employment agreement that restricts the employee from approaching former clients or colleauges of the employer to encourage them to leave for a new opportunity. An example from the same employment contract referenced above is as follows:

During the Restriction Period, you will not, directly or indirectly, contact, solicit or hire any employee, consultant, supplier or customer of X company, or assist any other person or business to do so, for the purpose of enticing the individual or entity to enter their relationship with X. 

Is the Non-Competition and Non-Solicitation Clause Enforceable?

As a general rule, Courts in Ontario are loath to enforce these provisions in employment contracts as they act as a “restraint on trade.”  In other words, the clauses act as a barrier to the former employee to earn income. As a result, the enforcement of non-competition clauses is especially difficult.  A Court is more likely to enforce a non-solicitation clause, which is designed to prevent the employee from contacting former clients for a defined period of time – but does not act as wholesale prevention from carrying on business in their specialized area.

What Factors make Non-Competition and Non-Solicitation Clauses Enforceable

Geographic Scope
The more limited the geographic scope, the more likely the clause will be found enforceable.  With the advent of social media, geographic restrictions are generally no longer found as pertinent to non-solicitation clauses, as prospective clients can easily be contacted online no matter where they reside. 

Length of Restriction
There needs to be an end date for the provision. While each fact scenario is different, the shorter the restriction, the more likely it is to be enforceable.

Scope of Prohibited Activity
Some clauses may prohibit the employee from working for a defined list of competitors, or it may be worded so broadly to prevent the employee from working for any company in a large industry. The more narrowly drafted and defined the prohibited activity, the more likely the clause will be enforceable.

This post was drafted by Jeff Goldstein, principal lawyer at Goldstein Law. If you would like more information about employment contracts generally or non-competition or non-solicitation clauses specifically, feel free to reach out to jeff@goldsteinlawyers.ca.

Working Notice or Notice of Termination – What is preferable?

When an employer wishes to break an employment contract without cause (i.e., for instance, to restructure its business), the company must provide the terminated employee with advanced notice of termination or payment in lieu of notice of termination.

As many callers to our law firm are surprised to find out, an employer is permitted to terminate an employee at any time for any reason whatsoever, so long as it is not a discriminatory reason, as long as sufficient notice of termination or reasonable payment in lieu thereof is provided.

Working Notice

If an employer chooses to provide working notice of termination to the employer (which is often deemed to be more inexpensive from the employers’ perspective), the employee will be given advanced notice that their employment will end at a future date (i.e., the Termination Date) and they will be obligated to continue working until that date. A typical working notice of termination clause is drafted as follows:

“This is to confirm your cessation of employment effective X Date (the Termination Date). During the period up to your Termination Date, you are required to complete all your duties.  You will be paid your regular pay and any outstanding vacation pay owed up to and including the Termination Date, less dedutions.”

 By providing advanced working notice of termination, the employer can keep the employee on staff, contributing to the company during the severance period.  This is typically viewed as more inexpensive than paying the employee a one-time lump sum payment, which immediately ends the employment relationship.  However, in many situations, the employee may sabotage the employer or malinger, which could cause reputational damage to the employer – a scenario which is best to avoid by providing payment in lieu of notice of termination.

How Much Notice to Give? 

  1. An employment contract may contain a restrictive termination provision which limits the employees’ rights on termination to the minimum amounts as prescribed by the Employment Standards Act (ESA). If the termination provision would be deemed enforceable by a Court, the contract governs, and the employee’s entitlement is constrained by the amounts set out in the employment contract.
  2.  Employees are entitled to termination pay under the ESA equivalent to one-week per year worked up to a maximum of 8 weeks. This can be paid as working notice or payment in lieu thereof.  Read the Ontario Ministry of Labour bulletin on dismissals here.
  3. Severance pay is also payable to terminated employees in Ontario that have been employed for a period of 5.0 or more years with the same employer that has a payroll of $2.5 million or greater. The amount of severance payable is one week per year of service up to a maximum of 26 weeks of pay. Severance must be paid as a lump sum and cannot be included as part of the notice of termination.
  4. The common law or judge-made precedents in Ontario set out the terminated employees full entitlement to severance in Ontario unless a restrictive termination provision in the employment contract limits the employee’s entitlement to the minimum amounts prescribed by the ESA.  Common law severance or “reasonable notice,” as it is typically referred to, is calculated based on an employees age, length of service, seniority, specialization in employment, length of time it will likely take to obtain comparable replacement employment, and other relevant factors. The total amount of common law notice payable is highly dependent on the facts of each specific case.

It is important to ensure that the employer is complying with their legal obligations to when providing severance packages. At Goldstein Law Firm, we will review your employment contract, severance package, and other relevant documentation in order to advise you (whether employer or employee), if what has been offered is fair and reasonable in the circumstances and given the above-referenced factors. If you have any questions about severance packages or wrongful dismissal in Toronto, Mississauga or elsewhere in Ontario, feel free to contact our employment law firm today!

 

Terminating Older Employees

With our aging workforce, there is an increasing need to terminate more senior employees in order to make room for younger, new entrants to the workforce. As has been discussed in other posts, whether an employee has been wrongfully dismissed is dependent on the amount of notice of termination or payment in lieu thereof that was provided. One of the key factors during a terminated employees severance entitlement is their age and seniority. As a general rule, an employee of more advanced age is typically entitled to enhanced severance as compared to younger employees.

The reason for this is that advanced age employees are likely to have substantial difficulty in obtaining alternate employment, especially if they are approaching retirement age. Accordingly, the severance package is intended to bridge the gap for the period of time the terminated employee is off work. In many recent cases, Courts have awarded payments up to 30 months of severance to a senior employee that was terminated without cause in Ontario

In Ozorio v. Canadian Hearing Society, the Plaintiff was a non-executive level employee that terminated at the age of 60 years old. The Court awarded 24 months of severance given the disadvantage she would have in locating alternate employment.

In order to avoid massive severance obligations to senior, advanced age, long-term employees, employers can ensure that well-written employment agreements are drafted to restrict an employees entitlements on termination and/or they are at liberty to provide advanced working notice of termination rather than payment in lieu thereof. In other words, if an employer intends to terminate an employee in the future, they can provide several months advanced notice, in order to avoid the obligation to make a lump sum severance payout.

If you have any questions about a recent termination from employment in Ontario, feel free to contact Goldstein Law Firm today.

Severance Pay for Long-Term Employees

With the aging of our population, a number of workers that have been employed by the same company for a long-period are either entering into retirement or oftentimes, are terminated due to a restructuring, as companies seek to bring on new, younger employees. In determining how much severance is owed to a long-term employee at an advanced age, reviewing precedents (i.e, other cases in Ontario employment law where judges have granted severance pay to employees in similar circumstances), is the best guide to determine how much you are entitled to.

In determining what is fair and reasonable in the circumstances, a Court will consider a number of factors, including but not limited to the employee’s age, the length of service with the company, and the level of job specialization. The main consideration underpinning this assessment is ‘how long is it expected to take for the terminated employee to obtain alternate comparable employment after the termination?’

Employees that have spent a long period of time with one company are not well-versed in the contemporary means available to apply for jobs; and accordingly, may have more difficulty in their job search. In addition, though employers cannot discriminate against employees on the basis of age, it is a common understanding that employees of a more advanced age typically find it more challenging to obtain a job as they approach 65 years of age. Accordingly, employees that have been terminated without cause with a long length of service and at an advanced age will be entitled to substantial severance packages.

The case of Lalani v. Canadian Standards Association is an example of a case whereby a 60-year old employee with 30+ years of service was awarded two-years of severance.

Please note that the vast majority of severance packages are inadequate. As a senior employee with a long length of service, you may be entitled to 100’s of thousands of dollars. It is imperative that you contact a qualified employment lawyer to discuss your termination prior to signing back any severance package.

Temporary Layoffs in Ontario

Temporary laying off an employee in Ontario often occurs in the context of seasonal businesses that required a reduced headcount during slow times of year or businesses that are in general decline. Rather than paying our full severance obligations to an employee, as required on the termination of employment, as discussed here and here, a temporary layoff affords the employer the opportunity to take an employee off of payroll for a defined period of time.

In employment law in Ontario, termination and a layoff have two very distinct meanings. A termination is a complete end to an employment agreement, which, if implemented on a without cause basis, gives rise to severance obligations. A layoff, on the other hand, is when an employer temporarily cuts off an employees employment, with the expectation that they will return back to work within a defined time period. Should the layoff exceed the maximum amount of time permitted to layoff an employee in accordance with the employment standards legislation in the province, the layoff will transform into a termination.

Under the Employment Standards Act in Ontario, employers are permitted to temporarily layoff an employee for a period of up to 13 weeks in a 20-week period. There are also rights to extend the layoffs under certain conditions. Under the Employment Standards Act, section 56 governs the layoff of employees working in Ontario.

A key issue with layoffs that an employer must be aware of is that despite the right to issue a temporary layoff as contained in Section 56 of the Employment Standards Act, an employer does not have the unilateral right to temporarily lay off an employee without a contractual right to do so. In other words, an employment agreement must be signed between the employer and employee that expressly authorizes a temporary layoff. Absent an agreement authorizing the layoff, the employer is not permitted to layoff the employee for any period of time. As such, the layoff will constitute a constructive dismissal at law, if the employer does not agree to bring the employee back to work immediately.

If you are an employee that has been temporarily laid off in Ontario, it is best to consult with an employment lawyer to determine whether the employer has complied with their obligations. It is imperative that you seek legal advice before agreeing to a layoff to ensure that you understand your legal rights.