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Your Partners Are Not Your Employees: Supreme Court of Canada Clarifies the Application of the Control/Dependency Test

In 2009, John McCormick, an equity partner in the law firm Fasken Martineau DuMoulin LLP (the “Firm”) filed a complaint with the British Columbia Human Rights Tribunal, alleging the Firm’s requirement that equity partners retire from the partnership and divest their equity at age 65 was age discrimination in employment, contrary to section 13 of the British Columbia Human Rights Code, R.S.B.C. 1996, c. 210 (the “Code”).

The Firm applied to have the complaint dismissed on the basis that the matter was not within the jurisdiction of the tribunal, and that there was no prospect that the complaint would succeed. The Firm’s primary position was that because Mr. McCormick was an equity partner in the firm, there was no employment relationship that could be the subject of a complaint under section 13 of the Code. The Tribunal denied the Firm’s application to dismiss however, and concluded that the relationship between Mr. McCormick and the Firm was one of “employment” for the purposes of the Code.

On judicial review, Justice Bruce of the Supreme Court of British Columbia agreed with the Tribunal, indicating that the application of the Code must be based on a conclusion that the complainant and the alleged offender are in an employment relationship in fact and in substance. In Mr. McCormick’s case, many of the attributes of his relationship with the Firm were the same as those found in a traditional employer/employee relationship and therefore the Tribunal’s decision to deny the Firm’s application to dismiss was justified.

The Court of Appeal disagreed however, and held that despite the broad, liberal and purposive interpretation that must be given to the Code, it is a legal impossibility for a partner to be employed by the partnership of which he or she is a member. The fact that the Firm’s management may exercise similar aspects of control over the partners as may be exercised by the management of a corporation over its employees does not change the relationship from one of partners running a business to one of employment by one group of partners over an individual partner. Accordingly, in a unanimous decision the Court of Appeal determined that there was no employment relationship, so the complaint should be dismissed. Mr. McCormick was subsequently granted leave to appeal this decision of the Court of Appeal to the Supreme Court of Canada.

On May 22, 2014 the Supreme Court of Canada released its highly anticipated decision dismissing Mr. McCormick’s appeal. Unlike the Court of Appeal which held that as a rule, it was impossible for a partner to be employed by the partnership of which he or she was a member, Madam Justice Abella, on behalf of a unanimous court, took a more contextual approach holding that that the primary question was to examine the essential character of the relationship between Mr. McCormick and the Firm and the extent to which it was a dependent relationship. While Justice Abella agreed with the Court of Appeal that on the circumstances of this case, it was impossible for Mr. McCormick, an equity partner in the Firm, to be employed by the partnership, she refused to close the door on finding a partner could be an employee in other situations. The key, according to Justice Abella, was “examining how two synergetic aspects function in an employment relationship: control exercised by an employer over working conditions and remuneration, and corresponding dependency on the part of a worker.” (at para. 23)

In this case, the Supreme Court confirmed that the Code is quasi-constitutional legislation and that the definition of employment for the purposes of the Code must be approached “consistently with the generous, aspirational purposes set out in s. 3 of the Code and understood in light of the protective nature of human rights legislation which ‘is often the final refuge of the disadvantaged and the disenfranchised’ and of ‘the most vulnerable members of society’”. (at para. 19, references omitted) Nevertheless, even considered in this philosophical framework, the Court found that the protections of the Code could not extend to Mr. McCormick.

Importantly, Justice Abella held that control and dependency are more than a function of whether a worker receives immediate direction from or is affected by the decisions of others, but whether the employee has the ability to influence decisions which critically affect his or her working life. In the case of Mr. McCormick, as an equity partner for some 30 years, he was part of a collective of individuals who had control over workplace conditions and remuneration—i.e. he was part of the collective employer and was not necessarily someone who was in a vulnerable position vis-à-vis that group. The Firm’s management structure and administrative polices to which Mr. McCormick was subject were not viewed as limitations on his autonomy making him dependent on the Firm, but rather, were viewed as necessary incidents of its management. Furthermore, though his income was pooled with his colleagues, his remuneration was set in accordance with his contributions to the Firm, in accordance with polices he would have had a right to vote to implement, and he drew income from the Firm’s profits and was liable for its debts and losses. Overall, the Court found that he was not working for the benefit of someone else, but to his own benefit.

Referring specifically to the decision of the Human Rights Tribunal, Justice Abella found that the Tribunal, in considering the control aspect of the relationship had given insufficient consideration to the underlying power dynamics of the relationship between Mr. McCormick and the Firm, and had focused unduly on the administrative polices which governed his activities within the Firm. In this case, where there was no genuine control over Mr. McCormick, an employment relationship could not be established for the purposes of the Code.

Justice Abella was careful not to close the door on other partners being found to be employees for the purposes of the Code in other circumstances. However, she was clear that such a situation would require normal partnership rights, powers and protections to be “greatly diminished”. (at para. 46). The Court was also careful to point out in obiter that while Mr. McCormick might not be able to avail himself of the protections of the Code, partners alleging discrimination nevertheless could have recourse against their partners with respect to the duties of utmost fairness and good faith required by the Partnership Act. However, the Court was careful to avoid commenting on whether such recourse was available in this instance.

Noteworthy, also released today was the United Kingdom Supreme Court decision of Clyde & Co LLP and another v. Bates van Winkelhof, [2014] UKSC 32. In that case, an equity partner in a law firm sought whistleblower protection granted to employees under the Employment Rights Act 1996. In this decision the Supreme Court came to the conclusion that the partner was a “worker” (as defined) for the purposes of that legislation. In that case, the Court was clear that there was no contract of employment between the partner and the firm in question, rather the decision turned on whether under the partnership agreement in question, the partner had undertaken “to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by that individual.” In this case, whether or not the partner was a worker turned largely on interpretation of the applicable statute in conjunction with the applicable partnership legislation. However, the Court also reviewed the concept of “subordination” (a permutation of the control and dependency test) and held that because the partner could not market her services to anyone other than the firm with which she was employed, and because she was an integral part of her business, she fell within the definition of worker in that case. Notably, the partner in question, although an equity partner, was junior in the sense that she received a fixed income and that there was a level of Senior Equity Partner above her, the antecedents to which appeared to fall more in line with the traditional benefits of partnership. Nevertheless, the Court in Clyde & Co did not necessarily focus on these factors in rendering its decision.

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Your Partners Are Not Your Employees: Supreme Court of Canada Clarifies the Application of the Control/Dependency Test

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

B.C. Introduces Pooled Registered Pension Plan Legislation

The British Columbia government introduced legislation on February 28, 2013 that once passed will make Pooled Registered Pension Plans (“PRPPs”) available to employees in the province. Features of the PRPP structure that may offer significant appeal to B.C. employers include:

  • Reduced administrative requirements – PRPPs will not be administered by B.C. employers, but rather by licensed entities, such as insurance companies
  • Low-costs realized through the pooled nature of the investments and central administration
  • Employer choices – PRPPs are not mandatory for B.C. employers, and once a PRPP is offered employer contributions are optional
  • Tax advantages for employers that are not available for other forms of workplace retirement savings plans
  • Employers not exposed to underfunding issues – the PRPP will function on a defined contribution basis, which limits employers’ funding obligations
  • Recruitment and retention advantages of providing a new option for retirement savings

The PRPP legislation is aimed to enhance pension coverage in B.C., where according to the Ministry of Finance News Release, approximately two-thirds of the workforce has no access to a registered pension plan.

Information about the federal government’s rules regarding PRPPs can be found here.

FMC will continue to monitor the legislation and provide updates on the implementation of PRPPs in British Columbia and across Canada. For more information please contact Colin Galinski at 604-443-7133 or colin.galinski@fmc-law.com.

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B.C. Introduces Pooled Registered Pension Plan Legislation

Denunciation, Deterrence and Retribution: Jury Awards Dismissed Employee $573,000 in Punitive Damages

The Vancouver Sun has reported that a British Columbia jury recently awarded employee Larry Higginson over half a million dollars in punitive damages, on top of a $236,000 award for wrongful dismissal, taking damages flowing from a wrongful dismissal to new heights in Higginson v. Babine Forest Products Ltd. and Hampton Lumber Mills Inc.

The Jury decision is not reported, however according to reports, Mr. Higginson had been employed for 34 years with the Defendant, Babine Forest Products Ltd., until he was dismissed on October 14, 2009, apparently for just cause. The employer alleged that Mr. Higginson failed to perform his duties as a manager. In response, Mr. Higginson alleged that cause had not been established and that the employer had set him up for termination of employment, had made his working environment miserable and had alleged cause to avoid the obligation to pay notice of termination of employment to long-term employees.

The Prince George B.C. jury found that the employer did not have cause to terminate his employment, and awarded damages in excess of $800,000 as a result of the wrongful dismissal.

Such a large punitive damages award has not been seen since the 2008 Ontario Superior Court of Justice awarded $500,000 to a wrongfully dismissed employee in Keays v. Honda Canada Inc.  However, in Keays, the Supreme Court of Canada (2008 SCC 39) overturned the punitive damages award on appeal.

A Notice of Appeal was filed in Higginson on July 18, 2012.

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Denunciation, Deterrence and Retribution: Jury Awards Dismissed Employee $573,000 in Punitive Damages

Get your jab! – British Columbia Government Imposes Flu Vaccination Requirement for Health Workers

This article originally appeared on occupationalhealthandsafetylaw.com.

In hopes of driving up immunization rates among BC health care workers, the Government of British Columbia is imposing strict flu-season requirements on workers who come into contact with patients at publicly-funded health care facilities or in the community. Starting with the upcoming flu season, applicable health care workers (including health-authority staff, physicians and residents, volunteers, students, contractors and vendors) will be required to either obtain a seasonal influenza vaccine or to generally don a mask at all times during the flu season.

B.C. Provincial Health Officer Dr. Perry Kendall, who recommended these measures to the Provincial Government, wrote that less than 50 percent of health care workers are immunized against influenza each year, despite being in contact with high risk populations such as seniors, pregnant women, young children, and the immuno-compromised. Citing evidence from long-term care facilities that health care worker vaccinations results in diminished illness and fewer deaths each flu season, the physician argued that “[g]etting the flu shot should be considered standard patient safety practice for all health-care workers who come into contact with patients – as important as following effective hand hygiene practices, staying home when ill or wearing a mask in the operating room.” British Columbia will be the first jurisdiction in Canada to implement such a policy.

According to media outlets, the unions representing health care workers are generally supportive of vaccinations, although the British Columbia Nurses Union has said it will not yet formally respond to the directive and has rather referred to its October 2011 Press Release on the issue where it stated that vaccinations should be promoted through education, rather than through a punitive approach by the employer.

A Government of British Columbia “Backgrounder”, cites influenza as causing the most deaths among vaccine-preventable diseases.

According to Dr. Kendall, in U.S. jurisdictions where similar requirements have been imposed, health care worker immunizations levels have reached approximately 95 percent.

The Government’s Press Release, Dr. Kendall’s Opinion Editorial and the BCNU Press Release on Influenza vaccinations can be accessed at:

http://www.gov.bc.ca/health/

http://www.newsroom.gov.bc.ca/ministries/health/factsheets/opinion-editorial-flu-shots-save-lives-protect-patients.html

https://www.bcnu.org/News/news.aspx?page=Bulletins_Oct 21, 2011

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Get your jab! – British Columbia Government Imposes Flu Vaccination Requirement for Health Workers

You Quit: Employee’s Claim of Constructive Dismissal Fails

On August 2, 2012, the British Columbia Supreme Court issued its judgment in the case of Danielisz v. Hercules Forwarding Inc. (2012 BCSC 1155). In Danielisz, the plaintiff was a customs broker with the defendant employer. At the time of her alleged constructive dismissal, the plaintiff was a Director of the employer (as the employer apparently required a licensed customs broker on its Board of Directors) and was manager of the customs department.

The employer’s office staff had a history of dissension and interpersonal difficulties. The Plaintiff claimed that she tried to overcome these difficulties, but that the other staff, including her subordinates, had ganged-up on her. She also claimed that her employer had undermined her authority by favouring lighter discipline for a staff member than the Plaintiff had originally imposed.

After a meeting at which the employer had tried to resolve some of the conflicts in the workplace, the Plaintiff commenced a sick leave which she claimed was caused by workplace stress. The Plaintiff ultimately went on Employment Insurance sickness benefits, attempted to make a claim with respect to the workplace stress to WorkSafeBC, and filed a complaint of constructive dismissal under section 66 of the Employment Standards Act. The workers’ compensation claim was denied, and the Plaintiff withdrew her complaint under the Employment Standards Act at the mediation.

Shortly after the mediation, the Plaintiff relocated to Kelowna, British Columbia, enrolled her son in school, obtained new employment and advised a co-worker by email that she was unwilling to return to the Defendant employer. However, in her communications with the defendant employer, the Plaintiff asserted that she would be willing to return to work with the Defendant at some point after her concerns with the workplace were resolved. In response, the Defendant employer asserted that the Plaintiff, by filing her complaint under the Employment Standards Act, had repudiated her employment agreement.  The employer proceeded to replace the Plaintiff. The Plaintiff then filed her action claiming damages for constructive dismissal.

Discussing the elements of the Plaintiff’s claim, the Court noted that whether or not a constructive dismissal has occurred depends on an objective assessment of all the evidence, rather than the employee’s subjective view of events. Further, the court held that where the allegations of constructive dismissal relate to claims of undermined authority or the behaviour of co-workers, the Plaintiff must show that the conduct in the workplace was such that a reasonable person in the circumstances should not be expected to persevere in the employment. Not every criticism by an employer or dispute among co-workers will sufficiently poison the work environment such that the employment relationship is undermined.

Applying these principles to the case at bar, the Court declined to find that the Plaintiff had been constructively dismissed. The Court found that the Plaintiff had been less than forthright about her own contributions to the negative work environment (finding that the “Plaintiff was engaged in ‘poisoning the work environment’ as much as she was ‘the targeted employee’”), and further, that the employer had not undermined her authority by imposing a lesser discipline on one of her subordinates. The evidence showed that although the Plaintiff’s immediate supervisor was an ineffective manager, he still reinforced her authority after this particular event.

The bottom line, to the Court, was that despite the unpleasant atmosphere, the work was getting done, the Plaintiff was not being forced to bear more than could be reasonably expected, and the Plaintiff had done little to try and improve the situation. Dismissing the Plaintiff’s claim, the Court found that the Plaintiff’s claim to WorkSafeBC and the complaint under the Employment Standards Act, combined with her relocation and new employment and conflicts in her statements to her employer and others, suggested that she had no intention of returning to work, and had rather hoped to extract some form of compensation from her employer. All of this, the Court held, amounted to a repudiation of the terms of her employment.  Her constructive dismissal claim was dismissed.

Danielisz v. Hercules Forwarding Inc., 2012 BCSC 1155 (CanLII)

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You Quit: Employee’s Claim of Constructive Dismissal Fails

Wither ‘Big Brother’? B.C. Privacy Commissioner Reins-in Government of British Columbia Criminal Record Checks

In keeping with her stance on overly-invasive employee background checks, British Columbia’s Information and Privacy Commissioner, Elizabeth Denham, has issued her findings and recommendations with respect to the B.C. Government’s policies, as an employer, for employee criminal record checks.

Finding that the government’s polices resulted in the unnecessary or overbroad collection of personal information, the Commissioner issued a number of recommendations aimed at limiting the amount of data collected by the provincial government, as well as the instances in which collection would be justified. The report also contains 16 recommendations for “Best Practices for Public Sector Record Checks”.

A “Best Practices” for private sector employers will be released at a later date.

The Privacy Commissioner’s July 25, 2012 Report can be accessed at: http://www.oipc.bc.ca/orders/investigation_reports/InvestigationReportF12-03.pdf

The Privacy Commissioner’s guidelines on social media background checks can be accessed at:

http://www.oipc.bc.ca/pdfs/private/guidelines-socialmediabackgroundchecks.pdf

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Wither ‘Big Brother’? B.C. Privacy Commissioner Reins-in Government of British Columbia Criminal Record Checks

Being Kicked in the Behind is No Laughing Matter: Employee’s Exaggerated Account of Workplace Altercation not Grounds for Summary Dismissal

Teresa Scholer was a fifty-five year old employee working in an entry-level position with the defendant employer. At the time of the termination of her employment, she had been working with the employer for approximately nine or ten months. In early 2010, Ms. Scholer was attending to her duties when she had an exchange with a co-worker. Inexplicably, after the exchange, her co-worker kicked Ms. Scholer in the buttocks. This event was captured by the employer’s video surveillance. The video surveillance also captured Ms. Scholer attempting to return the kick.

It was not clear from the video whether this was horseplay or something more aggressive. However, Ms. Scholer’s position was that she had been assaulted, and she complained to the employer that she was considering seeking criminal charges against her co-worker. She also complained about an earlier incident involving the same co-worker and about the fact that the co-worker had been scheduled for more shifts.

The employer viewed the surveillance, and considered that Ms. Scholer had not been honest about the incident, and had exaggerated it. Ms. Scholer was informed of the employer’s view of her description of events, but before Ms. Scholer was given an opportunity to review the surveillance, the employer terminated her employment, allegedly because she was difficult. Ms. Scholer was paid statutory notice of termination of employment, but the employer nevertheless insisted at trial that the termination had been for just cause.

The B.C. Provincial Court found that the employer had not established just cause. In particular, the Court found the employer’s focus on Ms. Scholer’s description of the incident, rather than the fact that she had been kicked in the buttocks, perplexing.  In all, the Court found that Ms. Scholer’s inaccurate description of the incident was neither in and of itself just cause for dismissal, nor was it a culminating incident that would justify the termination of her employment. There was no evidence that prior to her termination Ms. Scholer was aware that her job was in jeopardy. Finding that she was wrongfully dismissed, the Court assessed a notice period of four weeks given her particular circumstances including her short service.

Scholer v. Hart Drug Mart Ltd., 2012 BCPC 220 (CanLII)

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Being Kicked in the Behind is No Laughing Matter: Employee’s Exaggerated Account of Workplace Altercation not Grounds for Summary Dismissal

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

Bill 14 Receives Royal Assent: British Columbia Employees To Receive Workers’ Compensation for Bullying and Harassment

This Post also appears on occupationalhealthandsafetylaw.com.

Bill 14, or the Workers’ Compensation Amendment Act, 2011 received Royal Assent on May 31, 2012. Among other things, the Act expressly addresses bullying and harassment, and amends section 5.1 of the Workers’ Compensation Act. Section 5.1 currently requires that, in order to receive workers compensation benefits for a mental disorder, the mental disorder must have been an acute reaction to an event in the workplace. Come July 1, 2012, an employee will have a compensable claim for mental stress resulting from: traumatic events in the workplace; a significant work-related stressor; or a cumulative series of significant work-related stressors.

WorkSafeBC, the entity tasked with the administration and implementation of the Workers’ Compensation Act, must bring its Policies (which are applied by the Officers of the Workers’ Compensation Board in the course of adjudicating claims) into line with these changes to Section 5.1.

To this end, WorkSafeBC’s Policy and Regulation Division has developed a draft Policy which addresses the changes to the way claims of mental disorder are adjudicated. The Discussion Paper accompanying the draft Policy identifies the challenges of adjudicating claims of gradual onset stress, and notes the lack of experience with such claims at the Workers’ Compensation Board. However, the Policy, among other things, attempts to put some limits on the stress claims that may be advanced by employees by requiring that the stressor complained of must exceed the intensity or duration expected of the normal pressures associated with the workplace, and excludes interpersonal conflicts to the extent those conflicts do not include threatening or abusive behaviour such as bullying or harassment. Regardless however, it appears that Officers of the Board will retain a fair bit of discretion as to what stressors will, and will not, be accepted in the context of the new Section 5.1 and Policy, and employers can expect that the bounds of this discretion will be the subject of challenge at at least the Board and the Workers’ Compensation Appeal Tribunal.

In contrast to British Columbia’s new and broad approach to claims of mental disorder, Ontario, Newfoundland and Labrador, Nova Scotia, Prince Edward Island, New Brunswick and Manitoba have all implemented legislation which limits an employee’s ability to claim compensation for gradual onset stress.

WorkSafeBC estimates that the acceptance of claims under the new Section 5.1 will result in the acceptance of an additional 300 wage-loss claims annually, with an estimated cost impact of $18 to $20 million dollars.

WorkSafeBC is currently accepting stakeholder feedback on the proposed new Policy until June 15, 2012. The Discussion Paper and draft Policy can be accessed at: http://www.worksafebc.com/regulation_and_policy/policy_consultation/assets/pdf/Bill14/Bill14MentalDisorder.pdf

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Bill 14 Receives Royal Assent: British Columbia Employees To Receive Workers’ Compensation for Bullying and Harassment