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SCC Says Suspension with Pay can Amount to Constructive Dismissal

A non-unionized employee on an indefinite suspension with pay successfully claimed that he was constructively dismissed by his employer and was entitled to damages for wrongful dismissal.

The case involved David Potter, an employee of the New Brunswick Legal Aid Services Commission.  When his relationship with the Commission started to deteriorate in the first half of a 7-year contract, Mr. Potter engaged in discussions with the Commission regarding a buyout of the remainder of his contract. Mr. Potter then took sick leave before the buyout negotiations were resolved and was advised during his sick leave not to return to work “until further direction”. Mr. Potter’s pay was continued during the suspension, but the Commission delegated Mr. Potter’s powers and duties to another person and, unbeknownst to Mr. Potter at the time, the Commission wrote to the Minister of Justice recommending the revocation of Mr. Potter’s appointment for cause.

Unlike an explicit termination of employment, constructive dismissal exists when the employer engages in an act or conduct that shows an intention to no longer be bound by the original employment contract. The Supreme Court acknowledged that the test for constructive dismissal has two branches.

The first branch consists of two “steps”, and requires a review of the express and implied terms of the contract. The first step requires that the employee establish that the employer’s unilateral change constituted a breach of either the implied or express terms of the employment contract and, if it does constitute such a breach, it must be found to substantially alter an essential term of the contract.  The second step of the first branch examines whether a reasonable person in the same situation as the employee would have felt that the essential terms of the employment contract were being substantially changed at the time the breach occurred based on the information known to the employee at the time of the breach.

The second branch requires an examination of whether the employer’s conduct demonstrates an intention not to be bound by the contract, giving the employee the right to treat the contract as being at an end.  Under the second branch of the test for constructive dismissal, constructive dismissal can be found even where there is no breach of any term in the employment contract, or where the breach is not substantial; it focuses on the employer’s actions in relation to the contract more generally.  When examining this branch, it is the totality of the employer’s conduct, including conduct engaged in by the employer of which the employee was not aware at the time, that is taken into consideration in determining the employer’s intent.

If either branch is established, the employee has the choice of either accepting the act or conduct engaged in by the employer, or, if the act or conduct affects the employment contract in a “fundamental” way, the employee can treat the employer’s conduct as a repudiation of the contract and sue for wrongful dismissal.

Applying the test above to the facts of the case, a majority of the Court found that there were no express or implied terms of Mr. Potter’s contract that permitted the Commission to suspend him indefinitely without explanation:  the Commission had an obligation to provide Mr. Potter with work. The Court found that the Commission had a duty to be honest, reasonable, candid and forthright in its suspension of Mr. Potter, and concluded that the Commission had not established that the suspension was reasonable in the circumstances; rather, it was reasonable for Mr. Potter to perceive the indefinite, unexplained, unauthorized and unilateral suspension as a substantial change to his contract, and he did not acquiesce to the change. Thus the first branch of the test for constructive dismissal had been proven.

This case is a warning about the use of indefinite suspensions, even if the employee is paid during such a suspension. When contemplating a suspension, employers should be mindful that the overriding question is whether the suspension is reasonable and justified. Employers must demonstrate good faith, including being honest and forthright.  If suspending an employee (even with pay), an employer should advise the employee of both the reasons for and the anticipated duration of the suspension.  Employers should also review their employment contracts to determine whether suspensions are expressly permitted, and if not expressly permitted, give consideration to adding a suspension clause to future employment contracts, or carefully negotiating a suspension clause into existing contracts, to reduce the risk of constructive dismissal.  Alternatively, if an employer has a policy on suspensions, this can assist in arguing that the terms of the contract were not violated.

Potter v New Brunswick Legal Aid Services Commission, 2015 SCC 10

SCC Says Suspension with Pay can Amount to Constructive Dismissal

BC and Ontario Employers Take Note: Upcoming Minimum Wage Changes

Ontario
Last fall the Ontario Employment Standards Act, 2000 was amended to index increases to the minimum wage to Ontario’s Consumer Price Index.  Putting that into effect, Ontario is raising the general minimum wage from $11 to $11.25 per hour, effective October 1, 2015.  The minimum wage rates in Ontario for jobs in special categories (liquor servers, homeworkers, students, etc.) are increasing at the same time, and those can be found here:  Minimum wage rates.

BC
The B.C. government has announced that it will also index increases in the general minimum hourly wage and the liquor server wage to B.C.’s Consumer Price Index.  As a result, effective September 15, 2015, the BC general minimum wage will increase from $10.25 to $10.45 and the liquor server wage from $9.00 to $9.20 per hour.  Also effective September 15, 2015, the daily rate for live-in home support workers and live-in camp leaders, as well as the monthly rates for resident caretakers and the farm worker piece rates (for harvesters of certain fruits and vegetables) will be increased proportionate to the 20-cent increase in the general minimum hourly wage.

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BC and Ontario Employers Take Note: Upcoming Minimum Wage Changes

Significant Changes Proposed to Ontario’s Workplace Laws

Ontario’s government introduced workplace legislation on July 16, 2014 that would affect five labour and employment statutes in the province. Significant changes that are proposed in the Stronger Workplaces for a Stronger Economy Act, 2014 include:

  • Eliminating the $10,000 cap on the recovery of unpaid wages by employees through the Ministry of Labour claim process under the Employment Standards Act, 2000;
  • Increasing the limitation period to two years for employees to recover unpaid wages through the Ministry of Labour claim process under the Employment Standards Act, 2000.  The current limitation period is six months or one year depending on the type of claim;
  • Requiring employers to provide each of their employees with a copy of the most recent poster published by the Ministry of Labour that provides information about the Employment Standards Act, 2000. An employer must provide available translations of the poster if requested by an employee;
  • Making temporary help agencies and their clients jointly and severally liable for unpaid regular wages and unpaid overtime pay;
  • Requiring the Workplace Safety and Insurance Board to assign workplace injury and accident costs to temporary help agency clients when an employee is injured while performing work for the agency’s client;
  • Extending the safety protections under the Occupational Health and Safety Act to unpaid workers receiving training under prescribed conditions;
  • Decreasing the construction industry’s open period, when construction workers can join a different union close to the end of the term of their collective agreement, from three months to two months;
  • Expanding employment protections for foreign nationals who are in Ontario under an immigration or foreign temporary employee program. The protections include a prohibition on charging a recruiter fee or taking possession of the foreign national’s property, such as their passport or work permit; and
  • Tying future minimum wage increases under the Employment Standards Act, 2000 to the Consumer Price Index. The new minimum wage will be announced by April 1 of each year and will come into effect on October 1.

It is currently unclear when the proposed changes will be passed by the Ontario legislature. We will keep you apprised of any developments.

A copy of the Stronger Workplaces for a Stronger Economy Act, 2014 can be found here: http://www.ontla.on.ca/bills/bills-files/41_Parliament/Session1/b018.pdf

Significant Changes Proposed to Ontario’s Workplace Laws

Contract Requiring Ex-Employee to Compensate Former Employer for Competing Ruled Enforceable in British Columbia

A recent decision of the B.C. Court of Appeal has endorsed a novel approach to post-employment competition by upholding an employment contract whereby the employee was required to compensate the employer if she competed soon after her employment ended. In Rhebergen v. Creston Veterinary Clinic Ltd., 2014 BCCA 97, a newly licensed veterinarian signed a three-year employment contract with an established veterinarian clinic in a rural community. Under the contract, the veterinarian was required to pay her employer a set amount if she set up a practice in the same area within three years of the employment contract being terminated. The veterinarian left the clinic after fourteen months and soon established a mobile veterinary practice in the area. The veterinarian went to court to have the payment clause declared unenforceable.

The Court recognized that there were two approaches in establishing whether such a clause was a restraint of trade, either a “functional” approach, which asks whether the clause attempts to, or effectively does, restrain trade, or a “formalist” approach, in which the clause must be structured as a prohibition against competition, which does not include “mere disincentives”. The formalist approach is more commonly used in Ontario, but the B.C. Court of Appeal adopted the functional approach in its analysis, and concluded that the clause was, in fact, a restraint of trade.

Notwithstanding that the clause was found to be a restraint of trade, the Court held that the clause was not a penalty because it reasonably compensated the employer for the costs incurred in training the new veterinarian. The Court split on whether the clause was ambiguous and therefore unenforceable. A non-competition clause is ambiguous if it is not clear as to activity, time or geography. The majority of the Court concluded that there was only one reasonable interpretation to the clause and it was not ambiguous. The clause was therefore enforceable by the employer, and the veterinarian was required to pay the amounts under the contract to her former employer as a result of her competition.

This case demonstrates the continually evolving nature of post-employment covenants, and the fact that courts will give employers some latitude to develop contractual “tools” to provide protection (or at least give financial compensation) in the event a former employee engages in competition soon after employment. The fact that the Court of Appeal was not unanimous demonstrates, however, that this is a complex area requiring careful drafting of contractual terms.

A copy of the B.C. Court of Appeal decision can be found here: http://www.courts.gov.bc.ca/jdb-txt/CA/14/00/2014BCCA0097.htm

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Contract Requiring Ex-Employee to Compensate Former Employer for Competing Ruled Enforceable in British Columbia

Human Rights Tribunal Has No Jurisdiction to Hear Equity Partner’s Human Rights Complaint in British Columbia

 The British Columbia Court of Appeal has unanimously held that the British Columbia Human Rights Tribunal did not have jurisdiction under the BC Human Rights Code to hear an age discrimination complaint filed by a lawyer against a national law firm – a limited liability partnership – in which he was an equity partner.

As part of the law firm’s partnership agreement, there was a mandatory retirement age of 65. The partner filed a human rights complaint on the basis that he was discriminated against by the partnership on the basis of age. The Court of Appeal rejected the argument that a partner could be “employed” for the purposes of the BC Human Rights Code and found that there was no “employment” relationship between the law firm and its partner.  As such, the partner could not advance a human rights complaint that he was discriminated against in “employment”.

The Court of Appeal set aside the decision of the Human Rights Tribunal and the BC Supreme Court, both of which had held that the partner was employed, for the purposes of the BC Human Rights Code, and thus was entitled to advance the age discrimination complaint.

A copy of the decision can be found here: http://www.courts.gov.bc.ca/jdb-txt/CA/12/03/2012BCCA0313.htm

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Human Rights Tribunal Has No Jurisdiction to Hear Equity Partner’s Human Rights Complaint in British Columbia

Proposed New Limitation Period in British Columbia Announced

Bill 34 has been introduced in the British Columbia legislature to establish, for most claims, a basic limitation period of 2 years from the date of discovery of the claim. Currently wrongful dismissal claims in B.C. have a 6 year limitation period.

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Proposed New Limitation Period in British Columbia Announced

Minimum wage goes up in British Columbia

The general minimum wage in British Columbia will be increasing from $9.50 per hour to $10.25 per hour on May 1, 2012.

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Minimum wage goes up in British Columbia

Les prestations de retraite devraient-elles être prises en compte dans l’évaluation des dommages-intérêts accordés pour congédiement injustifié?

La Cour suprême du Canada a accepté d’entendre l’affaire Richard Waterman c. IBM Canada Limitée, 2011 BCCA 337 portant sur la question à savoir si le montant des prestations de retraite d’un régime capitalisé par l’employeur qu’un employé a reçues après la cessation d’emploi aurait dû être déduit du montant des dommages-intérêts qu’il a obtenus pour congédiement injustifié. La Cour suprême et la Cour d’appel de la Colombie-Britannique ont toutes deux conclu que les prestations de retraite versées pendant la période de préavis ne devaient pas être déduites du montant des dommages-intérêts accordés par le tribunal.

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Les prestations de retraite devraient-elles être prises en compte dans l’évaluation des dommages-intérêts accordés pour congédiement injustifié?

Are Pension Benefits Deductible from Damages for Wrongful Dismissal?

The Supreme Court of Canada has granted leave to hear the case of Richard Waterman v. IBM Canada Limited,2011 BCCA 337, on whether employer-funded pension benefits that were paid after an employee’s termination should have been deducted from damages resulting from a wrongful dismissal. Both the British Columbia Supreme Court and Court of Appeal held that pension benefits paid during the notice period were not to be deducted from the damages awarded by the Court.

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Are Pension Benefits Deductible from Damages for Wrongful Dismissal?

Employer’s Changes to Retiree Benefit Coverage Struck Down by B.C. Court

A recent Supreme Court of British Columbia case raises the issue of whether employers may unilaterally change the terms of retiree benefits for already-retired employees.

In Lacey v. Weyerhaeuser Company Limited, five already-retired salaried employees of Weyerhaeuser (and its predecessor company) had a benefits package which included specific retirement benefits coverage paid for by the employer. On January 1, 2010, the employer unilaterally cut its contribution to the cost of their benefits coverage by 50%, and announced that the retirees would be responsible for bearing any future cost increases. The employer stated that these changes were being done to sustain the viability and affordability of the retiree plans and that the employer had the discretion as to whether to provide retirement health benefits.  The five retirees sued.

The affected retirees did not have a written employment agreement setting out what benefits coverage would be provided after retirement.  The Court, after reviewing the company policies and written and oral communications between management and the retirees, concluded that retiree health benefits were intended as a form of deferred compensation and not a gratuitous payment.  Effectively, the employer’s promise to provide the retiree benefits coverage created a contractual obligation to continue to provide that coverage to employees who had already retired. Based on the contractual language in force at the applicable time, the right to make changes to the retirees’ benefits did not extend to changing the terms of an employee’s retirement health coverage after the date of retirement. As such, the retirees were entitled to the extended health benefits coverage as it existed on their date of retirement, without alteration to the scope of coverage, coverage limits or deductibles, and all at the employer’s expense.

A copy of the decision can be found here: http://courts.gov.bc.ca/jdb-txt/SC/12/03/2012BCSC0353.htm. A notice of appeal was filed on April 2, 2012.

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Employer’s Changes to Retiree Benefit Coverage Struck Down by B.C. Court