Hindsight is 2020: Our Employment Law Year in Review

By Nadia Zaman and Stuart Rudner

Last year, our annual review began this way:

As Stuart has often said, “you would think that by now, the law of employment would be relatively settled”. And yet here we are in 2020, and that is still not true. The reality is that the law regarding fundamental issues like contracts and severance continues to evolve and involve a level of uncertainty that can be quite frustrating for those involved.

That review was delayed due to the COVID-19 pandemic, and when we finalized it, we ended with this:

We can only imagine what the 2020 review will be like.

The COVID-19 Pandemic and the Workplace

Well, here we are, and no one could have imagined a year like the one we have experienced. The biggest story, of course, was the COVID-19 pandemic and its devastating social and economic impacts. While some businesses have thrived, many more have suffered, and countless jobs have been impacted or lost. In response to the entirely unanticipated circumstances, every jurisdiction introduced efforts to help businesses and individuals through legislation and regulation, many of which evolved over time, resulting in a constantly changing legal environment superimposed on a continuously evolving factual backdrop which differed from region to region.

The Common Law Continues to Evolve – More decisions favouring employees despite contractual clauses that attempt to limit their rights.

Employment Law continued to evolve, and although the courts were closed for much of the year and operating at limited capacity even when open, we saw several significant Employment Law decisions, including two from the Supreme Court of Canada.

All of the decisions we are referring to can be seen as pro-employee, and several granted relief to the employee despite contractual or policy provisions which would have precluded it. The end result is that it has become even more difficult to limit an employee’s entitlement to post-termination compensation. The old “active employment” wording will not be sufficient to relieve an employer of paying commissions, bonuses, or other variable compensation during the period of reasonable notice.

The Top Ten

This year in review is intended to summarize some of the most significant Employment Law developments in 2020. It’s always difficult to narrow the list down, but here is our top ten:

Termination Clauses Must Be Looked at in their Entirety – Meaning Many are Invalid.

In Waksdale v Swegon North America Inc, the Ontario Court of Appeal confirmed that a hypothetical flaw in a termination for cause clause, which would only be relevant in unusual circumstances, can render a termination without cause clause in the same contract unenforceable.

The case confirmed that a termination clause must be looked at in its entirety, and thus, despite the fact that the termination was without cause and the without cause provision standing alone was fine, the “for cause” provision invalidated the entire termination clause as it breached the ESA. As a result, the employee was entitled to common law reasonable notice, and significantly more compensation.

The Supreme Court of Canada denied leave to appeal, so the Ontario Court of Appeal’s decision remains good law. Waksdale garnered a lot of attention, and for good reason: Given that many employment contracts have similar for cause clauses, the decision renders the majority of termination clauses in employment contracts unenforceable, leaving employers exposed to significant liability under the common law.

This decision was followed in Sewell v Provincial Fruit Co. Limited (Sewell), where the court found the termination clause was unenforceable for two reasons:

• the without cause provision unlawfully combined notice and severance pay entitlements in violation of the ESA
• as in Waksdale, the with cause provision “contracted around the ESA requirement to provide notice except in cases where an employee engaged in ‘willful misconduct.’”

By applying Waksdale, Sewell signaled that the principles can be applied more broadly.

You can learn more about this decision from these additional posts:

• Another one bites the dust,
• Be sure to check your contracts,
• Another termination clause void in the wake of Waksdale, and
• Check Your Employment Contracts: Leave to Appeal Denied in Waksdale.

Dismissed Employees Are Entitled to Variable Compensation Unless There Is Unambiguous Language to The Contrary.

In Matthews v Ocean Nutrition Canada Ltd, the Supreme Court of Canada confirmed that the Plaintiff was entitled to a Long-Term Incentive Plan (LTIP) payment of approximately $1M due to the sale of the company even though the sale occurred over a year after he was constructively dismissed and the contract seemed to indicate that payments would not be made after his employment ended.

The Court found that the contract failed to unambiguously preclude the employee’s entitlement to the LTIP during the common law notice period. In doing so, they developed the following test to determine whether an employee is entitled to such incentive compensation during the common law notice period:

• Would the employee, under the terms of the employment agreement or compensation plan, have been entitled to the incentive payment as part of their compensation during the reasonable notice period?
• If yes, do the terms of the employment contract or incentive plan unambiguously take away or limit the employee’s common law right to those damages? If not, then the employee will be entitled to such compensation.

This decision shows that the onus is on the employer to unambiguously remove or limit the employee’s common law right to such damages. Otherwise, by default, the employee will be entitled to all compensation throughout the entire notice period. Employers who want to control their severance costs and post-termination incentive payments should prepare well-drafted contracts and ensure they are properly implemented.

You can learn more about this by watching our Post-termination Entitlements Video Update.

Even If There Is A Well-Drafted Clause to The Contrary, Dismissed Employees Will Be Entitled to Variable Compensation Unless They Were Explicitly Made Aware of The Clause.

Where the Matthews case confirmed the need for clear and unambiguous language to preclude post-dismissal entitlements, Battiston v Microsoft Canada Inc and similar decisions go one step further and hold that even where the clause is clear and unambiguous, an employer will not be able to rely on it if they didn’t clearly bring it to the employee’s attention.

In Matthews, the Ontario Superior Court of Justice emphasized the importance of properly communicating key contractual terms. The employee in this case alleged wrongful dismissal and sought damages for loss of stock awards. The court found that the termination provisions of the stock agreement were unenforceable because they were harsh and oppressive, and the employer had failed to bring those provisions to the employee’s attention.

In Sewell, the court went one step further to suggest that employers may have an implied duty of good faith to explain important terms of a contract before an employee signs the employment agreement, instead of simply bringing such provisions to their attention.

These decisions serve as a warning to employers: any key contractual terms should be properly communicated to employees, otherwise such terms could be unenforceable.

Another Termination Clause Unenforceable Due to Potential Violation of ESA – No Matter How Unlikely.

In Rutledge v Canaan Construction Inc., the employee worked in a position that was exempt from the right to notice of termination under the Employment Standards Act, 2000 (ESA), and the termination clause expressly precluded the employee’s right to statutory notice upon termination without cause. However, the Ontario Superior Court of Justice found the termination clause to be unenforceable due to its potential to violate the ESA. In particular, the court noted that the employee’s position could change in the future, in which case he might be entitled to statutory notice. The potential violation of the ESA rendered the termination clause void.

Unconscionable Arbitration Clauses will not be Enforced.

In Uber Technologies Inc v Heller, the Supreme Court of Canada held that an arbitration clause in the agreement of an Uber driver was unconscionable and unenforceable, since it prevented drivers from the ability to assert their rights under the agreement. In particular, the arbitration clause required Uber drivers to proceed with arbitration in a foreign jurisdiction, which would be very expensive and complex, such that the costs of proceeding in that manner would outweigh any benefits achieved.

The Court confirmed that the test for unconscionability in contract is composed of only two requirements: 1) an inequality of bargaining power, and 2) an improvident transaction. However, the Court did not review a ruling from the Ontario Court of Appeal that the arbitration clause was void for contracting out of a statutory complaint mechanism under the ESA. Accordingly, employers would be wise to ensure that an arbitration clause does not attempt to contract out of a statutory complaint mechanism, in order to ensure its enforceability.

Arbitrator Upheld Dismissal for Cause Where Employee Failed to Self-Isolate.

In Garda Security Screening Inc. v. IAM, District 140 (Shoker Grievance), arbitrator Brian Keller found that the employer had just cause to dismiss the grievor, a screening officer at Toronto’s Pearson International Airport, who had failed to self-isolate while waiting for her COVID-19 test results. The following key factors were considered:

• the employer had clear policies in place that were communicated to all employees;
• the grievor was aware of the guidelines and policies and clearly violated them;
• the grievor placed countless individuals at risk of contracting the virus; and
• the grievor was dishonest, lacked remorse, and lacked an understanding of the potential consequences of her actions.

In particular, the grievor’s dishonesty and refusal to take responsibility for her actions were crucial in concluding that the relationship had been irreparably broken.

This decision highlights the importance of having a clear policy in place, ensuring that it is properly communicated to employees, and conducting an investigation before dismissing for cause.

Arbitrator Upheld Mandatory COVID-19 Testing in Retirement Home.

In Christian Labour Association of Canada v Caressant Care Nursing & Retirement Homes, the retirement home had a policy mandating that all staff be tested for COVID-19 on a bi-weekly basis which was challenged by the union on behalf of a number of its members. Arbitrator Dana Randall dismissed the grievance. After weighing the privacy intrusion against the goal of preventing the spread of COVID-19 in the retirement home, the arbitrator found the policy to be reasonable.

This decision should not be taken by employers to mean that they can mandate COVID-19 testing in all contexts. The competing rights at play – privacy and safety – must be assessed and weighed based on the particular facts of each case.

Federally Regulated Employees Can Bring Unjust Dismissal Complaints After Signing Releases. 

In Bank of Montreal v Li, the Federal Court of Appeal confirmed that federally regulated employees can bring unjust dismissal complaints (within the permissible 90 day period) even if they have signed a release and/or settlement documentation. The Supreme Court of Canada dismissed the employer’s leave to appeal, so the Court of Appeal decision remains good law.

Amendments to Provincial Employment Standards Legislation (e.g. Infectious Disease Emergency Leave and Temporary Layoffs in Ontario).

In 2020, the COVID-19 pandemic led various provinces across Canada to adapt the applicable employment standards legislation, in order to provide employers with more flexibility and employees with job protection.

For example, the Ontario government made a new regulation temporarily amending the ESA, including the rules around temporary layoffs and constructive dismissal. The temporary amendments were extended a couple of times already and are now currently set to expire on July 3, 2021.

Put simply, the amendments mean that an employee would not be able to pursue a constructive dismissal claim under the ESA if they were temporarily laid off, as temporary layoffs are deemed to be a job-protected Infectious Disease Emergency Leave (IDEL). While the regulation removes an employee’s right to claim constructive dismissal under the ESA, it does not explicitly remove an employee’s right to pursue a constructive dismissal claim under the common law.

Employees who are not recalled back to work in time will be deemed to have been dismissed, in which case the employer will be obligated to provide them with their entitlements upon termination. This could mean significant compensation depending on the wording in the employment contract (or lack thereof), the length of service, and other factors, as applicable.

Employees who are currently on the IDEL because of childcare obligations or increased medical risks, for example, may continue to be on leave until such time that their circumstances change or until COVID-19 stops being a designated disease under the regulation. Furthermore, they may be entitled to accommodation under human rights legislation.

Government Benefits Provided to Employers and Employees.

In light of the COVID-19 pandemic, the federal government introduced various benefits to support employers and employees. One of the most impactful was the Canada Emergency Wage Subsidy (CEWS), which provides eligible companies experiencing a reduction in their revenue with a subsidy of up to 75% of an eligible employee’s wages. The specific rules and requirements have been adapted over the course of the pandemic, but the CEWS has helped many employers to continue operating and/or to avoid laying employees off.

In addition, the Canada Emergency Response Benefit (CERB) offered a taxable benefit to eligible workers who lost their income due to COVID-19, regardless of their eligibility to receive Employment Insurance benefits. The CERB provided $2,000 per month for a specified period of time. In Fall 2020, workers receiving the CERB who were eligible for EI were transitioned to the EI program. You can learn more here:

• Understanding the Canada Emergency Wage Subsidy (CEWS), and
• COVID-19 fact sheet regarding government support for employees.

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Conclusion

2020 brought about significant and often devastating changes in everyone’s lives, and unfortunately it continues to impact us all. The economy has sputtered, started and stopped, businesses have closed, reopened, operated remotely, and tried to figure out how to keep everyone safe in these unprecedented circumstances. As a result, employment laws and regulations have repeatedly changed, as have government support programs.

We anticipate that 2021 will also bring about significant change, especially as we continue to experience the impact of the virus. Remote work will become more common and will not necessarily be a temporary solution. While this may pose some challenges, many employers will:

• embrace the savings,
• increase in productivity, and
• the ability to access a wider talent pool, while employees will expect more flexible options.

Remote work agreements and policies will become more common, especially as employers understand their ability to maximize their rights and minimize their liability. As they address this “new normal”, employers should consider all of the issues that can arise, including:

• safety,
• data security, and
• performance monitoring.

As always, whether it is an issue related to Covid-19 and the workplace, or something else entirely, our team is available to help.

Posted on: Rudner Law

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