Employer/Employee Relationships

Here are some tips from a lawyer’s perspective:

The employer-employee relationship is one of the most common legal relationships in our society. Though these relationships are for the most part simple and straight-forward, the laws and principles which constitute “Employment Law” can create pitfalls for the unwary. The following tips are given for the purpose of raising awareness and helping employers identify potential legal concerns.

1. Familiarize yourself with the applicable statutes.

For most small businesses, the statutes which govern employment law are provincial statutes. Employers should be familiar with the key provisions in the following categories of provincial legislation:

• employment standard legislation;
• human rights legislation;
• health and safety legislation;
• workers’ compensation legislation; and privacy legislation.

As well, for most small businesses federal legislation in the following categories will also affect their relationship with their employees:

• employment insurance laws;
• Canada pension plan; and
• The Income Tax Act.

Most government offices now provide summaries of the legislation and guidelines which are easily accessed through the internet. These websites often provide answers to common questions and contact information for more complicated questions.

2. Employment Standards Legislation

As an employer, if you do nothing else, familiarize yourself with the key provisions of the employment standards act in your jurisdiction. These provisions outline the minimum obligations of employers. Employment standards acts typically contain provisions for:

• Hours of work;
• Payment for overtime;
• Payment for public holidays;
• Payment for vacations;
• Pregnancy, parental and emergency leaves;
• Termination and severance; and
• Minimum wages.

3. Don’t Forget the Common Law

In addition to the employment law statutes, in all Canadian provinces (Quebec excepted) the common law also applies. The common law is a set of principles and conclusions which have been established by earlier court decisions (sometimes hundreds of years ago) and which are followed by courts today. The common law is a big part of employment law.

For example, employment standards act legislation will provide minimum periods of notice (or wages in lieu of notice) which must be given to an employee who is terminated without cause. However, the common law usually requires longer periods of notice. This is almost always the case if:

• If an employee has been with the employer for a long time;
• If an employee has held a key management position; or
• If the employee has been lured away from another job.

Another example of the effect of the common law on employment law is how the principle of constructive dismissal is applied. The common law provides that some types of treatment by an employer, such as unilateral changes in compensation or changes in duties equivalent to a demotion, can constitute “constructive dismissal”. The common law gives an employee the right to treat such constructive dismissal as termination without cause for which the employee may be entitled to damages in lieu of notice. Employment standards acts also recognize constructive dismissal as termination.

4. Advertisements and Application Forms

Be careful how job advertisements are worded. An employee who is hired in response to an advertisement may be able to rely on its wording as constituting part of the terms of his or her employment contract. The wording can also potentially be construed as an inducement, a factor which might be relevant in determining the length of notice required for termination. As well, employers should be mindful that human rights legislation prohibits discrimination in employment on a number of grounds, including race, colour, political, belief, marital status, family status, sex, sexual orientation, physical or mental disability, age or an unrelated minor criminal record. Employers should take care when drafting both advertisements and job applications to ensure that they do not inadvertently create the basis for a discrimination claim against them.

5. Put it in Writing

Most contracts of employment are made verbally. Though verbal, those contracts are enforceable. Unnecessary disagreements can be avoided if employment terms are recorded in writing. If a position being filled does not justify the expense of having a lawyer prepare a formal contract, a letter from the employer clearly outlining the terms of employment and accepted by the employee is advisable and can be just as effective.

Most employment contracts contain terms dealing with the following types of items: compensation, duties, responsibilities, authority, holidays, benefits, expenses, non-competition, non- solicitation and termination.

Though they cannot affect minimum notice periods required by employment standards legislation, one useful benefit of written employment agreements is that they can be used to limit the length of notice required by the common law.

6. Employee or Independent Contractors

Sometimes one party to a “working” relationship wants the worker to be considered an independent contractor. Employers need to be aware that simply calling a person an independent contractor does not necessarily make them one. In determining whether a relationship is that of an independent contractor, the courts will look at several factors:

• The employer’s power to select its employees;
• The payment of wages;
• The employer’s control over the work of the employee;
• The employer’s right to discipline or dismiss;
• Ownership of tools or equipment; and
• The employee’s chance for profit and the risk for loss;

and may determine that a worker is a really an “employee” and not an independent contractor even if that is what they are called in the contract.

Employers have obligations to employees regarding Canada pension plan contributions, unemployment insurance contributions, workers’ compensation and income tax deductions. These obligations and other “employer-to-employee” obligations can arise no matter what the relationship is called by the parties. For this reason, employers need to be careful before entering into a relationship with a worker, treating the worker as an independent contractor and treating the worker as an employee.

7. Matters following termination

Under the common law, employees generally owe a duty of loyalty to their employer. An even higher fiduciary duty can be owed to the employer by key personnel. These obligations can, in some cases, extend beyond termination. For example, it would be a breach of duty for an employee to take confidential business information from an employer and use that information to compete against the employer. However, these common law duties are not absolutely defined and the courts are also reluctant to interfere with a person’s ability to earn a living. Employers who want to restrict an employee’s ability to compete in some manner following termination should not rely on the common law but should put those restrictions in writing at the outset of the employment.

A non-competition agreement would restrict an employee from competing with the employer’s business. In order for a non-competition agreement to be enforceable, it must be given for consideration and it must be reasonable in its terms (in terms of time and distance). If those principles are breached, the non-competition provision or agreement will not be enforced by the courts because they unduly restrict the employee’s ability to earn a living. Non-solicitation agreements are agreements which prohibit an employee from soliciting existing customers following termination but do not otherwise prohibit competition. These agreements, while less restrictive, are in some cases more readily enforceable, Employers should consult their lawyers for advice on the efficacy of these types of provisions or agreements.

8. Just Cause

The requirements for notice or damages in lieu of notice will not have to be met if an employer can establish that an employee was terminated for just cause. However, employers should be aware that they must be able to prove the reasons for termination and that proving just cause can be difficult. There can be adverse financial consequences to the employer for carelessly or maliciously alleging that a termination was for just cause and then being able to prove it.

Serious transgressions by an employee such as theft or other criminal conduct can, if proven, justify immediate termination by the employer. Less serious transgressions such as minor misconduct or incompetence will likely not justify immediate termination. In those cases, employers must take steps to give effective warnings to the employee over an appropriate period of time. Those warnings should be in writing and should specifically identify the issues of concern. The employer should also make it what steps must be taken to rectify the shortcomings and the timeframe within which the problems need to be addressed.

The real lesson to be drawn from these tips is that employers should make themselves aware of the potential issues which can arise in employer-employee relationships so that they can seek timely professional advice from their consultants and/or legal advisors.

Contact Gregory Greiner for more information.

Located in: Employment Law