Update on Employment Contracts
Where are we now – when it comes to employment contracts?
2020 was a year of many cases, some of which had nothing to do with COVID. Yes, we have seen quite a few legal developments in 2020 from our highest courts with respect to the employment relationship and employment contracts in particular. This was all happening as employers had a few other things on their plates.
The key themes are these:
Employment agreements are first and foremost about quantifying termination liability. But when it comes to termination liability, our courts are telling employers that termination clauses need to be looked at “organically” – they need to be interpreted as a whole, meaning both the “for cause” and “without cause” provisions. If any part of a clause, read as a whole, violates minimum standards legislation, then the entire clause is called into question, and there is very little that can be done to save it. This means a number of things: clauses that provide for only statutory minimums are under increased scrutiny – so maybe it is a good idea to avoid them by using termination formulas that provide for more than just the bare minimums. But if employers are going to use the bare minimum clause (which is still ok), they need to make sure that each and every component of the clause does not pose a “potential” for violation of any part of the Ontario Employment Standards Act. The key word is potential. In Ontario, this means that “just cause” provisions that provide for no notice are now rendered unenforceable, as the standard under the legislation is “wilful misconduct”, not “just cause”.
In dealing with notice periods, courts expect that all elements of compensation are to be part of the calculation of pay in lieu of notice. This means commission. This means bonus. So, if an employer is going to draft contracts or policies that limit exposure for bonus payments during the notice period, the language must be absolutely clear that bonuses are not going to be part of the package – not part of pay in lieu of notice. In other words, there must be an express contracting out of the common law entitlement. This year, the Supreme Court of Canada has made if very clear that simply stating, for example, that an employee must be actively employed on date of payment is not going to result in non-payment of the bonus over the notice period.
Speaking of fine print, we now also have courts saying that an employee’s attention should be drawn to provisions in bonus or incentive policies which deprive them of certain entitlements to compensation during the notice period. Many employers rely upon complex compensation plans, with a lot of fine print. These plans are routinely updated, and many employers simply post them on internal intranet sites – with or without employee sign off. When the basic rules change in a significant way (as in taking away bonus payments during the notice period), an employer must realize that something needs to be given in exchange for the change, especially if the changes takes away from an employee. And an employer has the onus of establishing that the change was drawn to the employee’s attention – and accepted.
What does this all mean?
Well, it speaks to the need for vigilance by employers. Agreements and policies should be vetted by experienced counsel on a regular basis, especially as our courts become more and more active.