Starting off the employment relationship on the right foot, with all parties knowing their obligations, is the foundation for a long and successful relationship. We recommend employers take the following steps to limit liability and clearly communicate obligations to employees.

Ensure your interview process complies with human rights legislation and the Accessibility for Ontarians with Disabilities Act (“AODA”)

Interview and hiring processes engage Ontario’s Human Rights Code (“Code”). Accordingly, it is crucial that you ensure these processes comply with the Code. Best practices include:

1. Offer and provide accommodation for the interview: Employers must accommodate applicants’ needs related to Code grounds for any part of the interview or hiring process to the point of undue hardship;
2. Ensure your interview questions comply with the Code: If inappropriate questions connected with Code protected grounds are asked, it could be inferred that the hiring decision will be premised on those questions. For example, if you ask many questions about an applicant’s family, and they mention they have onerous family obligations, they may conclude their family situation influenced your decision if they are not hired and make a claim against you;
3. Discrimination in the hiring process: Ensure you are assessing applicants on their merits, and do not make hiring decisions based on discriminatory reasoning, such as: (1) rejecting an applicant because they do not fit with the company image. This could be perceived as discrimination based on race, (2) refusing to hire someone because they are “overqualified.” This could be perceived as discrimination based on age, and (3) eliminating an applicant due to a gap in their resume. This could be viewed as discrimination on the basis of disability if the applicant were out of workforce due to medical reasons.

In summary, your hiring process should focus on transparency and evaluating applicants based on their credentials.

AODA Compliance

Further, you should ensure your hiring process is accessible to comply with the AODA. Employers can include the following in an accessible hiring process:

1. Accessible Job Postings: Ensure that your website complies with WCAG 2.0 web accessibility standards for layout and content;
2. Notice of Accommodation and Contact Information: Ensure your job posting states your business welcomes applications from people with disabilities and explain who the candidate should contact for accommodations; and
3. Accessible interviews: Be prepared to offer the following accommodations, if requested:

• An American Sign Language (ASL) interpreter;
• An interview scheduled at a time the candidate is most focused; and
• A location accessible for someone using a mobility device.

Vaccination as a condition of employment

Many employers are now inundated by wrongful dismissal claims from employees who were terminated due to non-compliance with mandatory COVID-19 vaccination policies.

Moving forward, employers can mitigate this risk by making vaccination a condition of employment in the offer letter. Essentially, potential candidates must be vaccinated against COVID-19 as a condition of the offer of employment, absent any medical or religious grounds protected by the Code.

You should have written employment agreements

While there is no requirement to have an employment contract in writing, employers should use written employment agreements because:

1. Enforceable termination provisions permit an employer to limit an employee’s entitlements on termination to the minimum required by the Employment Standards Act, 2000(“ESA”). Absent an enforceable termination provision, your employees are entitled to common law reasonable notice, which is often significantly more (up to 4 times more) than the ESA minimum entitlements;
2. Temporary layoff provisions permit an employer to place an employee on an unpaid temporary layoff. Absent a temporary layoff provision, employers are vulnerable to constructive dismissal claims; and
3. Employers can limit other entitlements upon termination, such as entitlement to bonuses over the common law reasonable notice period.

There are many other benefits to using written employment contracts, such as clearly setting out hours of work and vacation days.

Consider having new employees sign a confidentiality agreement

A confidentiality agreement or confidentiality provisions in an employment agreement that apply during and after an employee’s employment are an important tool to protect confidential information. For example, confidentiality provisions prohibiting the use of confidential client lists by former employees help to protect legitimate business interests and lawfully curtail competition.

In addition, absent a confidentiality agreement or confidentiality provisions in an employment agreement, employees have a common law duty of good faith and fidelity to their employer. This includes a confidentiality obligation not to use any confidential information they learned during the course of employment.

Question: We have had the same contract worker working for us full time for 10 years. Due to restructuring, we will no longer require their services and will sadly have to let them go. How much notice do we need to give and do we need to pay severance?

The first question to answer is if this contract worker providing services to you over the last 10 years is an independent contractor, dependent contractor, or employee. This difference is crucial because it determines what, if anything, your contract worker is entitled to on termination.

If they are truly an independent contractor, you do not owe them anything on termination, unless provided for by contract.  If they fall into the hybrid intermediate category of a dependent contractor, you will have to provide reasonable notice of the termination of their services, unless provided otherwise by contract.  If they are an employee, you will owe them common law reasonable notice, unless you have otherwise limited the entitlement by contract.

To assess if they are an independent contractor, dependant contractor, or employee, courts will look at the relationship between you and the contract worker. A court will look at several factors to determine if the contract worker is an independent contractor, the intermediate category of dependent contractor, or an employee, including:

• If the worker controls the method of doing work;
• If the worker can hire and fire other employees;
• If the worker relies on the employer for most of their income; and
• If the worker exclusively, or almost exclusively, works for the employer.

In your case, the most salient factor is that it appears the contract worker exclusively, or almost exclusively, works for you.

 

If the contract worker is an “independent contractor”

If the contract worker is an independent contractor, good news, the minimum standards of employment standards legislation do not apply.  If in Ontario, that means you are not obligated to provide notice or severance under the Employment Standards Act (ESA), nor would common law reasonable notice apply, unless it was provided for by contract.

While some employers have lawfully structured their organizations to accurately classify independent contractors as independent contractors and employees as employees. Many others have misclassified their employees as independent contractors to bypass the ESA. This is a dangerous practice, as it plainly contravenes the ESA.

 

If the contract worker is a “dependent contractor”

Even if the contract worker might be an independent contractor, since they are working exclusively or almost exclusively for you, another consideration is whether they might fall into the intermediate category of dependent contractor.

In McKee v Reid’s Heritage Homes Ltd., 2009 ONCA 916, the Ontario Court of Appeal stated that a dependent contractor is an intermediate category between an employee and independent contractor that is defined by a complete or near-complete exclusivity with the employer. Importantly, dependent contractors are entitled to reasonable notice of termination of their contract.

Note that dependent contractors are self-employed, remit their own statutory deductions such as CPP, EI and income tax, and share many of the characteristics of an independent contractor, but rely on you for all or most of their income.

 

If the contract worker is an “employee”

If your contract worker is found to be an employee, they would be entitled to reasonable notice of termination, unless they have a contract that has validly limited them to some other entitlement with enforceable termination provisions.  No contract can limit an employee’s termination entitlements to less than their minimum entitlements under the ESA.

Further, if your contract worker was found to be an employee, you could be in arrears for 10 years of CPP, EI, and income tax.

 

So, you are probably asking “what does this all mean for my business?”

The consequences of being employee or dependent contractor rather than an independent contractor are dramatically different on termination. Using this scenario as an example, if the worker is 45 years old, employed by you for 10 years, and earning $85,000 per year, that employee could be entitled to a total of 52 weeks’ common law reasonable notice, or $85,000 pay in lieu of notice! Remember that both employees and dependent contractors are entitled to reasonable notice of termination.

If you have a written contract with a valid termination clause, this could be limited to a minimum entitlement of 8 weeks’ notice of termination, plus severance pay of a further 8 weeks, for a total of $26,000, under the ESA.  An enforceable termination provision would potentially save you nearly $60,000 in pay in lieu of notice.

Finally, before terminating any worker, we encourage you to contact an experience employment lawyer for legal assistance, as the line between an independent contractor, dependent contractor, and employee can be blurry and complex.

We encourage you to contact Hum Law to assist you with structuring your organization to ensure ESA compliance.

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Ontario Employers should revisit all employment contracts or risk costly legal settlements.

Less than a year ago, in June 2020, employers were left shaken by the ground-breaking Ontario Court of Appeal decision in Waksdale v. Swegon North America Inc.  (“Waksdale”).  Waksdale held the entire termination clause in an employment contract is rendered unenforceable if there is an unenforceable “for cause” termination provision, and a severability clause did not operate to save it. On January 14^th, 2021, an application to appeal the decision was refused by the Supreme Court of Canada and dismissed with costs. Ontario employers have no possible reprieve from the ramifications of this decision.

Given the Supreme Court of Canada’s refusal to grant leave to appeal, Waksdale remains the law in Ontario. It has already been followed by the Superior Court in Sewell v. Provincial Fruit Co. Limited, 2020 ONSC 4406 (CanLII) (“Sewell”), where a “termination for just cause provision” nullified the entire termination clause, including the termination without cause provision. The result entitled the employee to common law reasonable notice instead of what was agreed, the minimum under the Employment Standards Act, 2000, SO 2000, c 41, (“ESA”), in their employment contract.

What does this mean for employers?

The Waksdale and Sewell decisions can lead to costly consequences for employers. First, the common law reasonable notice periods are much longer than the ESA minimums, or what parties might agree in their employment contracts. This can make severance payments much more costly, and entirely unanticipated if contracts are not revised.  During the pandemic and its aftermath, severance can become a vital issue for many businesses since employment termination may be unavoidable.  It can mean the difference between surviving as a business and floundering or failing.  Having an employment contract in place with ESA minimum termination clauses that has not taken into account the holding in the Waksdale decision, rendering them unenforceable, could turn 10 weeks of termination pay into 10 months owed.

The other factor for employers to consider is that the length of the common law reasonable notice period is much less predictable than an agreed upon number, especially when the court has to consider the unprecedented effects of the pandemic.  Will courts award longer notice periods due to the pandemic and economic conditions in certain industries?  The unpredictability and uncertainty may lead to disputes and legal costs even if the parties agree that the employees are entitled to common law reasonable notice. For example, an employer may think the reasonable period should be 10 months, while their employee may ask for 15 months. Costly legal fees are unavoidable in this situation, even if the employer concedes that the employee is entitled to common law reasonable notice.

Before the Waksdale decision was rendered, much less attention was paid to the termination for cause provision since it was rarely relied upon, and was therefore irrelevant when considering whether the termination without cause provision was being considered.

In order to avoid costly legal battles, employers who have not already done so must immediately review their employment agreements.  A well-written employment agreement provides certainty that may not only save employers from unexpected severance costs, but also reduce the chances of disputes and legal expenses. To navigate through the delicate process of amending employment agreements, especially for existing employees, employers should seek legal advice from an employment law expert.  A misstep could lead to invalid contracts, unintended constructive dismissals, and more.  Contact HUM Law today to ensure your employment contracts will remain valid.

We encourage you contact us immediately for legal assistance.

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