Terminations during the Probationary Period: Three Common Assumptions

Many employers like to take the first few months of a new employee’s employment to decide whether their new hire is the right addition to the team.   Some like to call it a probation, others, a trial or evaluation period. Irrespective of what it is called I have noticed three recurring assumptions about this initial period that are worthy of attention by both employees and employers.   Employers relying on these assumptions may believe themselves better protected against claims for payment of reasonable notice than may in fact be the case. Employees for their part may assume that they have no recourse following a termination during their probation period which again, may not always hold true.

Assumption #1 – An employer can automatically terminate an employee during the first three (3) months of employment without providing the employee notice or pay in lieu.

The right to terminate without notice during the probation period is not automatic. Although the Employment Standards Act, 2000 (“ESA”) stipulates that an employee who is terminated within the first three (3) months of their employment is not entitled to notice or pay in lieu, a court will not simply infer that the employee has agreed to these terms.   Justice Lederman in Easton v. Wilmslow Properties Corp [2001] O.J. No 447 reasoned:

The existence of a probation period is a question of fact in each case. Since it takes away an employee’s usual rights, a probationary period must be expressly agreed to by the employee. It cannot be implied into the relationship…

Assumption #2 – In the absence of a clear probationary period clause, the amount of notice that a short service employee is entitled to receive is necessarily very minimal.  

Some employees who have had their employment terminated within the probation period (and who did not have enforceable probation clauses in their contracts) have been awarded some relatively lengthy notice periods. To give three examples: In the case of Easton, the plaintiff who was terminated after two weeks was awarded three (3) months’ notice because she had left a reasonably secure job to work for the defendant employer.   Likewise, in the case of Rejdak v.The Flight Network, the employee was awarded four (4) months of notice after eleven (11) weeks of work.   Similarly in Deacon v Moxey, 2013 CanLII 54099 (ON SCSM) the employee was awarded three (3) months of notice after working two (2) weeks.

Assumption #3Extending a probation period provides the employer a longer period within which they can terminate the employee without notice.

While an employer can stipulate a longer probation period (i.e. 6 months) in an employment contract, this does not automatically extend the window that an employer can terminate the employee without notice or pay in lieu. Employers will want to ensure that the probation clause is drafted to ensure that there are no violations of the ESA.

Whether you are an employee or an employer, if you have questions about drafting or the enforcement of a probation clause our employment lawyers would be pleased to assist.

The State Has No Place In The Bedroom Of The Nation… But Does Your Employer?

termination

In 1968, former Prime Minister Pierre Elliot Trudeau ushered in significant changes to the Criminal Code, which had until then criminalized homosexuality, with the following well-known pronouncement:

There is no place for the state in the bedroom of the nation. What is done in private between two adults does not concern the Criminal Code.

Although the state may be out of the business of regulating the conduct of its citizens in this private sphere, employers appear to be taking a heightened interest in what is going on in the bedrooms and private lives of their employees.

Consider the recent media storm that surrounded the firing of Jian Ghomeshi, the former CBC Radio Host, after allegations of non-consensual and unorthodox sexual practices came to light.  Or the media attention received by Shawn Simoes, the former Hydro One worker who was terminated  after shouting sexual obscenities at a TV reporter at a Toronto FC soccer game.  In the varied reaction to each of these stories, there was an element of surprise that an individual’s conduct in non-work related contexts was not only of immediate concern to their employers, but directly relevant to their continued employment.

These media stories appear to be reflective of wider trends.  Over the past year, individuals whose names have appeared on the Ashley Madison list, employees who have had intimate photos taken of them and people who engage in “non-mainstream” sexual practices have increasingly been seeking legal advice because their off-duty conduct has come to the attention of their employers and they are concerned that their employment could be terminated as a consequence.

In reviewing employment contracts in my own practice, I have noticed an increased focus on employees’ private lives.  On a number of occasions, clients have asked me to review new employment contacts because what could be described as a “morality clause” caught their attention.  These clauses tend to run along the following lines:

The employee recognizes and agrees that at all times his/her conduct and character, both in and out of the workplace, must be in accord with the high standard of moral and ethical character that all employees at Company X abide by.  Consequently, any acts of questionable moral or ethical character could cause the immediate termination of this agreement.

One of the employees who recently consulted me about such a clause pointed out that it was not so long ago that her same-sex relationship could have been captured by such a clause.  Seen in this light, there is a real possibility that including such a morality clause could have the effect not only of alienating prospective employees, but potentially also of leading to claims of discrimination.

Although this flurry of “off-duty conduct” cases may be prompting some employers to think it is necessary to include a morality clause in their standard employment contracts, the case law has, in fact, long-recognized that employers are entitled to terminate an employee for off duty conduct provided they can demonstrate that at least one of the following circumstances applies:  that the employee’s conduct harmed the employer’s reputation or product; that the impugned conduct rendered the employee unable to perform his/her duties satisfactorily; that the employee’s conduct interfered with the employer’s ability to properly carry out its function or efficiently manage its operations and/or workforce; that the employee’s behaviour lead to the refusal, reluctance or inability of other employees to work with him/her; or that the employee has been guilty of a serious breach of the Criminal Code and thus rendering his conduct injurious to the general reputation of the Company and its employees.  These circumstances are set out in the 1967 Ontario decision of Re Millhaven Fibres and Oil, Chemical and Atomic Workers I.U. Loc 9-670, which has been followed in a number of recent “off-duty” conduct cases, including the recent decision in Canadian Union of Public Employees, Local 4400 v Toronto District School Board, 2015 CanLII 24478 (ON LA, http://canlii.ca/t/ghh50).In order to determine whether any of these circumstances apply, it will always be necessary to examine the particular facts and context at issue.

Whether you are an employee or employer, the Employment, Labour and Human Rights lawyers at Mann Lawyers would be pleased to speak to you about any off-duty conduct issue that you might have.

 

 

 

 

 

Colleen Hoey featured in the November edition of Faces Magazine Ottawa!

In case you didn’t see this month’s edition of Faces Magazine, my article “Starting a New Job? What to consider when reviewing your employment contract” was featured on page 33 of the business section in the magazine. Read the full article here!

Faces Magazine Feature

How enforceable are non-competition and non-solicitation agreements in employment contracts?

Non-competition and non-solicitation agreements can put employees in a real bind. But are they enforceable?

Non-competition and non-solicitation agreements can put employees in a real bind. 

It is common for clients to seek advice about the legality of non-competition and non-solicitation clauses (sometimes referred to as “restrictive covenants”) in their employment contracts.   For someone who has recently lost their job, the idea of having to sit on the bench for months or face risking a law suit can present a serious dilemma.

On the other hand, employers often share key confidential information with their employees and trust them with their clients, product and know-how, so if the employment relationship is terminated, they understandably want to put conditions in the employment contract in an attempt to bring a reasonable level of protection to their commercial interests.

So what is the difference between a non-competition agreement and a non-solicitation agreement? Are these agreements actually enforceable? What if the agreement has to do with the sale of a business?

.

The Difference Between Non-Competition and Non-Solicitation:
Non-Competition:

A clause in an agreement stating that the employee agrees not to work for or start a business that is similar to their employers.

Example Situation: if a hairstylist worked for a salon for a number of years and learned all the tricks of the trade, then left the salon to open up her own salon down the street.

Non-Solicitation:

A clause in an agreement stating that the employee agrees not to approach employees of the company and encourage them to leave the employer for new job opportunities, or approach clients of the company for their business.

Example Situation: if that same hairstylist opens her new salon, tries to persuade her old co-workers to start working for her, and contacts clients of her old salon to convince them to bring their business to her new salon.

Are Non-Competition and Non-Solicitation Clauses Enforceable?
  • Generally, non-competition clauses in regular employment relationships are difficult to enforce in Ontario.  Employers and employees alike may be better served by giving serious consideration to whether such a clause should even be included in an employment contract at all.
  • However, non-solicitation clauses may be enforceable, but need to be clear, unambiguous, and reasonable in light of the employee’s position, knowledge and responsibilities.
  • From the commercial perspective, non-competition clauses that are included in employment contracts made in the context of the sale of a business will be presumably enforceable (more on this later).

As a general rule, the courts in Canada have considered clauses which restrict a former employee from working in their chosen field as contrary to public policy. The reason is that stopping someone from competing interferes with individual liberty and restricts open competition. Consequently, non-competition clauses included in regular employment contracts are difficult to enforce.

What a court is more likely to do in regular employment situations is to enforce a non-solicitation agreement, which is designed to prevent a former employee from contacting the company’s clients and employees for a defined period of time after the employment.

What makes a Non-Competition or Non-Solicitation Agreement Enforceable?

Whether it is a non-competition clause or a non-solicitation clause, one of the key questions a court will try to answer before determining if it is enforceable is “how reasonable is the restriction?”  Three main questions that factor into determining how reasonable the agreement is include[1]:

1.      What is the geographic scope?   

Anywhere in the world” is too broad, and is less likely to be considered a reasonable geographic scope than one with a limited radius.

Interestingly, while a non-competition agreement must be geographically limited, a non-solicitation agreement may not need to be geographically limited to be valid. Due to new technological developments and social media, customers are no longer limited geographically, and the Supreme Court of Canada has recently concluded that geographical limitations in non-solicitation agreements have generally become obsolete.[2]

2.      How long is the restriction meant to last? 

It would not be reasonable to prevent a former employee from competing indefinitely. There needs to be an end date for when the agreement expires. Each situation will be different, but generally the shorter the restriction period, the more likely it will be to resist scrutiny. Six months will seem more reasonable than five years.

3.      What is the scope of the prohibited activity?   

Is the person restricted from working for a specific list of competitors, or does the clause try to stop the employee from working for “any businesses competitive with the employer or that of any of its subsidiaries and affiliates”? This might be too broad to be considered reasonable. The purpose of allowing restrictive covenants is to protect legitimate business interests only.

What about Non-Competition and Non-Solicitation Agreements involving the Sale of a Business?
Commercial Context vs. Employment Context

The law differentiates between how enforceable these agreements are within a general employment context (the relationship between an employer and employee), and the commercial context (one that arises in connection with the sale of a business).  This distinction was emphasized in the Supreme Court of Canada case: Payette v. Guay. Payette was concerned about the how enforceable the a non-compete clause was in the sale of a business.  Justice Wagner wrote that:

The criteria for analyzing restrictive covenants to be reasonable will be much broader in the commercial context than in the context of employment.  I am therefore of the opinion that, in the commercial context, a restrictive covenant is lawful unless it can be established on a balance of probabilities that its scope is unreasonable.   (emphasis added)

In other words, restrictive covenants born in the commercial context will be presumed to be enforceable.  This stands in direct contrast to the standard employment context we have been talking about, which places the onus of demonstrating that the restriction is reasonable on the party who is trying to have the agreement enforced (usually the employer).


[1] Elsley v. J.G. Collins Ins. Agencies Ltd., [1978] 2 S.C.R. 916

[2] Payette v. Guay inc., 2013 SCC 45

____________________________________________________

Colleen Hoey is an Ottawa-based lawyer practicing in the areas of Employment Law, Human Rights Law, and Civil Litigation at Mann & Partners, LLP. The articles on this blog are not intended to provide legal advice. Should you require legal advice, please contact Mann & Partners, LLP at 613-722-1500 or fill out our form to be contacted within 24 hours.

The Price of Breaking Promises in Settlement Agreements

Breaking a promise to keep the terms of settlement confidential can mean having to give settlement money back.

For some employees, the legal documents that they are asked to sign after the parties have agreed to a dollar value to settle a claim for wrongful dismissal can seem like “mere details”. Employees who sign such settlement agreements (typically Full and Final Releases, and Minutes of Settlement) are well advised to take their promise to protect the confidentiality of any settlement they reach very seriously.

Arbitrator Louisa Davie recently ruled in a matter involving the Globe & Mail (the employer) and a former employee and writer, Jan Wong (represented by her Union). The Arbitrator ruled that Jan Wong had to repay the amount of money she received in a settlement with the Globe & Mail after her employment was terminated.

Jan Wong had been employed as a reporter at the Globe & Mail for a number of years.  Her employment was terminated in June 2008 following a lengthy period when she had been absent from work because of depression.  Ms. Wong filed grievances because of Globe’s failure to pay sick leave and the termination of her employment. Ultimately, Ms. Wong’s grievances were settled in a Memorandum of Agreement dated September 24, 2008. According to a judicial review application, the Agreement provided for certain payments to Wong by the Globe & Mail, provided the terms of the settlement were kept confidential.  Key paragraphs to the application  were paragraphs 6 and 8 of the Agreement, which stated:

5.  The Employer acknowledges that the Grievor was ill and unable to attend at work from June 11, 2007 to November 13, 2007 for that reason.

6. With the exception of paragraph 5, the parties agree not to disclose the terms of this settlement, including Appendix A to anyone other than their legal or financial advisors, Manulife and the Grievor’s immediate family.

7. The Grievor agrees that until August 1, 2009 she will not disparage The Globe and Mail or any of its current or former employees relating to any issues surrounding her employment and termination from The Globe and

Mail. The Globe and Mail agrees that until August 1, 2009, to not disparage the Grievor.

8. Should the Grievor breach the obligations set out in paragraph 5 and 6 above, Arbitrator Davie shall remain seized to determine if there is a breach and, if she so finds, the Grievor will have an obligation to pay back to the Employer all payments paid to the Grievor under paragraph 3.

…And then Ms. Wong published a book.

The 2012 memoir Out of The Blue dealt with Ms. Wong’s experience with workplace depression.  She also gave some interviews to the media. In response, the Globe & Mail initiated a hearing before the Arbitrator on the grounds that the applicant had breached her non-disclosure obligations.

The Arbitrator’s decision does not suggest that Ms. Wong disclosed actual details of the terms of this settlement. What Ms. Wong did say was that “she had received a big pile of money to go away”, and that “a big fat check landed in my bank account.” According to Arbitrator Davie, these disclosures were sufficient to qualify as breach because a person reading Wong’s book would be left with the impression Ms. Wong had “fought back and won”,  successfully resisted a “gag order” and that the Globe had caved and admitted liability. In fact, the Agreement expressly provided that neither party was admitting any liability.

This “big pile of money” now had to be returned.

The importance of protecting the confidentiality of settlement negotiations and agreements is long standing.  Employers may be motivated to settle a case for wrongful dismissal for a number of reasons including avoiding a drawn out and costly legal dispute, the potential negative publicity and impact on company moral as well as the risk that a court may confirm that the company did wrongfully dismiss their employee. It is not universally the case that an employer settles because they believe they have a weak case.

Without the promise of confidentiality, companies may worry that if the story gets out that they paid money to a former employee, the public will assume the employer did something wrong; they may also worry that it will create a slippery slope of ever increasing demands for settlement funds when they are required to terminate other employees’ employment.

That said, if it is the case that Ms. Wong was wrongfully dismissed and improperly denied sick then the result in the end seems fairly harsh.

You can read the full story here.

Colleen Hoey is an Ottawa-based lawyers practicing in the areas of Employment Law, Human Rights Law, and Civil Litigation at Mann & Partners, LLP. The articles on this blog are not intended to provide legal advice. Should you require legal advice, please contact Mann & Partners, LLP at 613-722-1500 or fill out our form to be contacted within 24 hours.

Starting a new job? What to consider when reviewing your employment contract.

Contracts

Contracts (Photo credit: NobMouse)

1.      Start Date

Take the time to read the employment contract before you sign and before you start working.

2.      Termination Clause

This is the part of the contract that sets out how much notice the employer will give you if the decision is made that it is time to part ways.  Often the clause will say that the employer will only pay the minimum set out in provincial employment regulations.  The provincial minimum is often less than what an employee without an employment contract would receive.

As an example, a three year employee would receive 3 weeks pay in lieu of notice under the Ontario Employment Standards Act, 2000 (“ESA”). If that same employee’s contract did not limit the amount of notice they would get under the ESA, that employee would be entitled to claim common law notice which tends to be more generous than the statutory minimums.  In deciding how much notice an employee is entitled to at common law, a Court will consider the employee’s age, availability of other comparable jobs, and any other factors they think are relevant to determining an appropriate amount of notice.  The result is often a longer notice period for the employee.

If your contract says that you will only be provided with the provincial minimum of notice, you may want to try to negotiate for a notice period that is more in line with the common law.

3.      Non-Competition Clause

These clauses are typically difficult to enforce in Canada and are generally viewed as attempts to limit an employee’s ability to earn a living.  In order to manage expectations of both the employee and the employer, it would be worth asking that the non-competition clause be removed.  It is likely the case that some language in the contract about confidentiality of employer information and a non-solicitation agreement may provide some of the protection an employer is looking for while still respecting the employee’s ability to work in the same industry.

4.      Reference to Other Documents

If your employment contract states that you have read and agree to be bound my certain corporate policies or procedures, make sure that you are provided with a copy of those policies and that you review them before you sign.

Consider consulting a lawyer before signing your employment contract. Some people are concerned that consulting a lawyer before starting work shows a lack of trust.  It is often much easier to work out potential misunderstandings and clarify terms ahead of the employment agreement than after an employee has been terminated.   A consultation for a standard employment agreement should require no more than two hours for a review of the contract and give advice.  Senior executive contracts involving shareholder agreements and stock options will require additional time.

Colleen Hoey is an Ottawa-based lawyer practicing in the areas of Employment Law, Human Rights Law, and Civil Litigation at Mann & Partners, LLP. The articles on this blog are not intended to provide legal advice. Should you require legal advice, please contact Mann & Partners, LLP at 613-722-1500 or fill out our form to be contacted within 24 hours.

Restrictive Covenants in Employment Contracts

charter_legal

A recent court decision reaffirmed that employers need to be careful when drafting restrictive covenants, commonly known as non-compete clauses.

In a recent decision of the Ontario Court of Appeal, Mason v. Chem Trend Ltd. Partnership, 2011 ONCA 344, the court considered the enforceability of a restrictive covenant in an employment agreement and the need to balance an employer’s protection of confidential information and trade connections and a public policy against the restraint of trade.

Tom Mason was terminated by Chem-Trend after 17 years of employment as a technical sales representative.  Before his termination, Mason’s territory of responsibility included all of Canada and a number of mid-Atlantic U.S. states.  When Mason began working for Chem-Trend he had signed an employment agreement which contained the following restrictive covenant:

“I agree that if my employment is terminated for any reason by me or by the Company, I will not, for a period of one year following the termination, directly or indirectly, for my own account or as an employee or agent of any business entity, engage in any business or activity in competition with the Company by providing services or products to, or soliciting business from, any business entity which was a customer of the company during the period in which I was an employee of the Company.”

Mason brought an application asking the court to declare the restrictive covenant unenforceable.

The Court of Appeal looked at the Supreme Court decision of Shafron v. KRG Insurance Brokers, [2009] 1 S.C.R. 157, which held that covenants that restrain trade will only be upheld where they are found to be reasonable in the circumstances.  The court first analyzed whether there was any ambiguity on the face of the covenant, and found that the plain words were clear.  The court then applied a three prong test to determine if the restrictive covenant was reasonable.  The three factors the court considered were:

  1. Did the employer have a proprietary interest it was entitled to protect?
  2. Are the temporal or spatial limits of the covenant too broad?
  3. Is the covenant overly broad in the activity it proscribes because it prohibits competition generally and not just solicitation of the employer’s customers?

In its analysis, the court looked at the employment agreement as a whole, finding that there were other covenants in the agreement which protected trade secrets and confidential information.  The court also found that a restriction on all former customers of the company, whose customer information could be very stale in the case of a 17-year employee, was not consistent with the one year restriction.  It would also not be clear, in practice, for Mason to know which potential customers he was prohibited from doing business with as there was no way for him to know if a potential contact was a customer of the company in the last 17 years.  The court found that the complete prohibition on competition was overly broad and therefore unreasonable and unenforceable.  The court did indicate that there may be more justification for a broader prohibition on competition in highly placed employees such as the president or chief financial officer.

It is clear that the Ontario courts will not enforce restrictive covenants which are ambiguous or overly broad in scope or activity.  In addition, Canadian Courts will not “read down” an unenforceable covenant, rather the covenant will be found unenforceable in its entirety.  This decision highlights the need for employers to carefully draft restrictive covenants that are not overly broad in either scope or duration.

Colleen Hoey is an Ottawa-based lawyer practicing in the areas of Employment Law, Human Rights Law, and Civil Litigation at Mann & Partners, LLP. The articles on this blog are not intended to provide legal advice. Should you require legal advice, please contact Mann & Partners, LLP at 613-722-1500 or fill out our form to be contacted within 24 hours.