Probationary Employee Dismissed: Out of Luck Says ON CA

Is a probationary employee entitled to wrongful dismissal damages?  Can an employer contract out of these damages?  Until now, most Canadian court decisions have held that even a probationary employee is entitled to wrongful dismissal damages.  The exception is where the employer uses a properly worded contract.  Generally, the contract must specify the length of the period and what, if anything, the employee will be paid if dismissed during the probationary period.  An employee must be paid at least one week’s damages if the probationary period is longer than three months, since that is the amount specified by the Ontario Employment Standards Act, 2000.  But the contract must specify how much the employee will be paid if dismissed after three months, while still on “probation.”

Surprisingly, this was not the conclusion of the Ontario Court of Appeal in a recent decision.  In Nagribianko v. Select Wine Merchants Ltd., the Court reviewed a case that had been to the Ontario Small Claims Court and the Divisional Court.  The employee had signed a contract that referenced a six month probationary period.  But the contract does not appear to have specified a payment that the employer was required to provide if dismissed after the first three months.  This should have made the contract null and void in accordance with the Supreme Court of Canada’s powerful decision in Machtinger v. HOJ Industries Ltd. [1992] 1 S.C.R. 986.

The employee had worked for the employer for just less than six months.  He was dismissed on a without cause basis.  He sued for damages and was awarded four months’ compensation in the Ontario Small Claims Court.  The judge ruled that he had been induced to join the employer and that the clause did not effectively oust the employee’s common law entitlement.  This seems consistent with most of the case law.

The Ontario Divisional Court reversed the decision and held that the trial judge had failed to give effect to the probationary language.  The Ontario Court of Appeal upheld the Divisional Court’s decision and held that the term “probation” was not ambiguous. It ruled that “probationary status enables an employee to be terminated without notice during the probationary period if the employer makes a good faith determination that the employee is unsuitable for permanent employment, and provided the probationary employee was given a fair and reasonable opportunity to demonstrate their ability.”

The Appeal Court went on to conclude that the employer could not contract out of the minimum standards required by the Ontario Employment Standards Act, 2000 and that therefore the employee was entitled to one weeks’ pay, which the employee received, even though this one week’s pay was apparently not specified in the contract.

This analysis all would have been correct if the contract had specifically stated that the employee could be dismissed after three months but before six months with the payment of one week’s pay and the continuation of one week’s benefits.  However, if the contract did not say that specifically, it should have been viewed as a contract that would violate the common law case law as set out in Machtinger v. HOJ.  The contract appeared to specify that the employee could be dismissed at any time during the six months as a probationary employee with no notice or payment.  The fact that the employer paid the minimum one week’s compensation required by the ESA 2000 ought not to have fixed a poorly drafted contract.

Here, in contrast to the Brake v. PJ-M2R Restaurant Inc. that I looked at last week, the Ontario Court of Appeal weighed in heavily on the side of employers and was quite unsympathetic to what should have been a reasonable employee claim.  The decision is good news for Ontario employers, even those with poorly drafted contracts, who may now find it easier and cheaper to dismiss probationary employees.  The decision also demonstrates, as I indicated previously, that the outcome of a case at the Ontario Court of Appeal may well depend on the particular panel that is hearing the decision.  In this case, justices LaForme, Hourigan and Paciocco have issued a ruling that strongly favours employers and provides quite the contrast with the previous decision that I examined in Brake v. PJ-M2R Restaurant Inc., which went the other way.

Other recent Ontario Court of Appeal decisions have also gone in different directions and I will review two or three more of them in coming blogs.  The most significant take-away is probably a strong measure of uncertainty, which underscores the risks inherent in civil ligation and, particularly, in employment law cases.

Fixed Term Employment Contract? Better Prove It!

When is a fixed term employment contract not enforceable?  A recent decision of the Ontario Superior Court in Tossonian v. Cynphany Diamonds Inc. addressed this issue.  The court held that the fixed term guarantee was not part of the original deal between the parties and threw out that part of the contract.  The plaintiff was still awarded wrongful dismissal damages but they were much lower than they would have been if the employment contract had been enforceable.

The plaintiff, Razmig Tossanian, moved from Vancouver, B.C. to accept a position at Cynphany Diamonds in Toronto.  According the trial decision, the plaintiff was looking for an opportunity to move his family to Toronto.  After lengthy negotiations, he accepted an email offer of employment that purported to be based on an oral agreement.  The email set out the various terms that had been agreed upon, but made no mention of a five year fixed term.  The plaintiff did not respond in writing, though he indicated that he had called the owner of Cynphany to confirm the five year guarantee.

The plaintiff moved from Vancouver to Toronto without anything further in writing.  He began working for the defendant in late August 2011.

Some weeks later, the parties signed an “Employment Contract.”  This document did not reference the five year term.  A further document, for mortgage purposes was prepared, and signed by the defendant.  The second document stated that the plaintiff had a “guaranteed five year position.”

There was yet another document that also referenced a five year period, which was also prepared for mortgage confirmation purposes.  When the bank called to confirm, the owner of the defendant confirmed the five year term.

Mr. Tossanian worked for a total of approximately 8 months for the defendant.  At some point, according to the evidence, the plaintiff began having discussions with another potential employer and he shared information with these discussions with at least one co-worker.  He apparently suggested to his co-worker that he had a guaranteed job if he was fired by Cynphany Diamonds.  The owner of the defendant found out about these discussions and became quite upset.  There was a factual dispute about whether or not the plaintiff resigned or was fired but the evidence seems to be fairly clear in this regard that he was fired.  He was not fired for just cause as it is not cause to fire an employee for looking for other work.  Just cause was not argued at trial.

After being dismissed, the plaintiff went to the potential employer but the job opportunity that he had been pursuing fizzled.  Ultimately, he wound up returning to Vancouver and going back to his old position after just more than 4 months.  This position was at a much lower rate of pay.

The plaintiff sued for wrongful dismissal.  He alleged that he had a five year fixed term employment agreement and that it had been breached.  Even though he found work after four months, he claimed that his losses over a period of five years would amount to approximately $175,000.

The court does not seem to have been impressed by the plaintiff or his evidence.  Despite the various written agreements, the court held that the initial email between the parties was the key document and it did not reference a five year term.  Although the employer made “inflated representations about the duration of Mr. Tossanian’s employment contract to help him get a mortgage” the five year term had not formed part of the initial employment contract.  The court held that there was no new consideration for the five year guarantee.  The decision notes that the presiding judge did not feel that a salesperson of fine jewellery would require a five year fixed term employment contract.

Even though the court refused to find that there had been a five year guarantee, it still found that the plaintiff had been wrongfully dismissed. The court then had to turn to the applicable notice period.  The judge was not particularly sympathetic to Mr. Tossonian.  He was awarded a total notice period of two months, amounting to just over $13,500.  This was awarded after a trial that spanned over seven days, not to mention all of the preliminary motions, examinations and other court appearances.  Ouch!

In some respects, the decision is puzzling.  The plaintiff had at least two documents, signed by the defendant, providing for a guaranteed five year period.  Although the owner of the defendant provided evidence that things were not really as they seemed, the court’s explanation of why the five year fixed term employment agreement should not be enforceable is not particularly convincing.  If the defendant signed a document guaranteeing a five year period, provided that document to third parties and answered oral inquiries in a manner consistent with that document, there seems to be ample reason to find that the document was binding.

The court’s decision was likely coloured by the plaintiff and by the court’s assessment of the plaintiff as a witness.  The judge did not seem to like the plaintiff’s explanation as to why the five year fixed term was not included in the original email.  The court was less than impressed by the plaintiff’s efforts to find work for another employer, while still employed by the defendant.  In particular, the court found that the plaintiff had discussed that with at least one other employee and this caused the judge to empathize with the employer. As well, the court noted that the plaintiff returned to his old position reasonably quickly after being dismissed and may have had other opportunities as well.

The judge’s assessment of the plaintiff and that plaintiff’s character was quite damaging.  Not only did the court reject the five year term but it also awarded the plaintiff a very short notice period of only two months.  Courts have a great deal of latitude in selecting the appropriate notice period.  Although judges are supposed to consider the length of service, age, type of position and a variety of factors, decisions are inevitably coloured by the likeability of the plaintiff as a witness.

It may well be that this case is headed for an appeal to the Ontario Court of Appeal for a reassessment.  While the two month notice period is probably not likely to change if the Court of Appeal upholds the court’s findings, the real issue is whether or not the employer was bound by a five year employment contract.  This seems to be a question of law and one which the Court of Appeal may well consider carefully and could even reverse, depending on the particular Court of Appeal panel.

The decision is a reminder of some very key points that apply to many employment law situations:

1.  An enforceable contract must contain all of the terms and must be agreed upon by both sides, in advance, prior to the start date.  Oral representations, side agreements and “confirmation of employment letters” may not be binding if they conflict with the original contract;

2.  Where an employee finds work after being dismissed, courts will be reluctant to award large scale damages unless there is a very compelling reason to do so;

3.  Whether or not a witness makes a favourable impression on the court is crucial.  If a court has concerns about a witness’s honesty, character, motivation or if a court has other concerns, that may well have disastrous consequences for that side.

 

 

 

 

 

Are Employment Contracts Negotiable?

Are the terms of employment contracts negotiable?  More often than not, the answer is yes.  But it amazes me how many people tell me that they assumed that the proposed employment contract was simply a “standard form” agreement and just signed it – even when accepting fairly high level positions.

In other posts, I have looked at the types of clauses that can be used in employment contracts and what they really mean.  You can find the most recent discussion here.

But I wanted to consider some more practical points.  Some might seem obvious.  But people holding a new job offer in hand don’t always think of everything that should be considered.  While you may be anxious to sign the employment contract and start the new job, especially if you have been out of work for some period of time, you really do need to look at the contact closely.  Not all of the terms are written in stone.

What items can be negotiated?

1. Salary.  Well, of course this is not really a legal point.  But most people realize that salary is negotiable.  So I often have employees tell me that they negotiated up the salary level of a new position – but ignored everything else in the contract.  Don’t assume that the salary is fixed.  There may well be room to improve it.  Most of the time, it can’t hurt to try.

2. Vacation and Bonus.  In a sense, these benefits go hand in hand with salary.  They are tangible items that an employer might agree to increase.  Often, both items are subject to a grid or a plan.  But I regularly see employers making agreements to increase vacation time at the request of a new hire – especially from two to three weeks or from three to four.

3. Severance.  This is crucial.  Even though it might seem like the last thing on the mind of someone who is about to be hired, it can be incredibly significant.  Some employers will use clauses that drastically limit the amount of potential severance to be paid on a dismissal.  Any clauses that say “employment standards legislation” or something similar should be questioned and considered.  They might even be deal breaking clauses.  As a result, employers will often negotiate these clauses.  If they will not, you should get proper legal advice so that you understand the implications of signing away such important and monetarily valuable rights.

4. Non-Competition Agreements: People generally realize that these clauses are significant, even if they have not had legal advice.  But I often hear employees telling me that a friend or family member told them not to worry because these clauses are rarely enforced and may not even be enforceable.  While that advice might be true sometimes, it is not always the case.  Signing a non-competition agreement – or even a “non-solicitation” agreement can greatly impact your future opportunities after leaving this new employer.  These clauses are also often negotiable, particularly the proposed time period of the restrictions.

5. Probation and Benefits Clauses.  Believe it or not, these too are negotiable items.  If an employee is being recruited from another position, the potential employer may agree to waive a probationary period and/or start benefits right away.  Sometimes a signing bonus can even be negotiated.

These are just a few of the points to consider.  Competent legal counsel can often point out a number of different clauses in a proposed employment contract that are problematic or that should be considered very carefully.  It may well be much cheaper, in the long run, to go through an employment contract review process at the outset than a legal battle at the end of a relationship.  It is usually far worse to find out, after being dismissed, that a signed employment agreement has now left you with below-market severance, enforceable post-employment restriction and no real legal alternatives.

If the employer is reasonable and is genuinely interested in treating its employees fairly, it should be prepared to negotiate reasonable provisions in all of these areas and maybe some others as well.

 

 

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