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.

 

 

 

 

 

Signing an Employment Contract in Canada? Points to Consider.

Congratulations!  YoConract Signingu have made it through the interview process and have now  been given an employment contract.  The contract may contain terms that significantly alter your legal rights.  Don’t assume that the document is a “standard form” or that it is non-negotiable.  You should consider the terms carefully.  You may consider getting legal advice to have it reviewed properly.  Here are some things to consider before signing:

1.  Termination Clause:  In Canada, this is the number one item to watch for.  If  there is no termination clause, you will generally be entitled to common law “reasonable notice” on dismissal.  This can be in the range of one month per year of service and can often be much more than that.  Under Canadian law, employers can use termination clauses to limit the amount of compensation you might get in the event of a dismissal.  Employers can provide that they are paying as little as the minimum amounts under the applicable employment standards legislation.  With proper wording, they can exclude common law amounts.  If you sign a clause like this, it may be enforceable.  This could end up costing you thousands of dollars.  These clauses are often negotiable.  If the employer will not negotiate, this type of clause could be a deal-breaker for some people, especially those with other options.  Ideally, a Canadian employment contract should simply state that in the event of dismissal, you will be provided with notice and/or compensation in accordance with common law.  Beware of any reference to the Employment Standards Act in a termination clause.

2.  Post Employment Restrictions:  This is the second most important reason employers use written employment contracts in Canada.  If there are no post-employment restrictions, you are generally free to work wherever you like, with whomever you like after you leave a workplace.  Employers often include non-solicitation clauses (of clients or employees), non-competition clauses and confidentiality clauses in their agreements.  Some of these clauses may be enforceable.  They may also make it very difficult for you to find alternate employment later on, even if the enforceability of the clause is uncertain.  These clauses are often negotiable.  Be very wary of extensive non-solicitation, non-competition or other similar clauses.

3.  Probation:  Contrary to what most people believe, there is no “standard” or automatic probation term.  Although probation is referenced in the Ontario Employment Standards Act, for example, this type of clause is not automatic.  If you are leaving other employment to accept a position – and even if you are not, you may be able to get the employer to delete the probation clause.    You may also be able to get the employer to start your health and medical benefits immediately without a probationary period.

4. Compensation:  It goes without saying that the various components of your income should be set out clearly- including salary, bonus, car allowance, pension or RRSP contributions, stock options or share grants and any other amounts that have been discussed.  Employees can often negotiate a signing bonus, particularly if you found the position directly or if you are leaving other employment to accept this role.  If the terms of a plan (for example, a bonus plan or a commission plan) are vague or not provided, you should consider requesting further information or even some guarantees for the first year or two.  Vacation and sick days should also be specified.  Vacation time is often negotiable.

5.  Role and Responsibilities:  The position should be described in sufficient detail, ideally with a job description attached as an appendix, if appropriate. Watch for language in the employment contract that would permit the employer to change your position, job location, hours of work or other key employment terms with minimal or no notice.  These clauses may be enforceable and could alter your legal rights.

6.  Lay-Off:  Some employers include a clause that states that the employer can put its employees on a “lay-off” in the even of a work slowdown, without advance notice or compensation.  These clauses may be legally enforceable and may alter your common law rights.

7.   Entire Agreement Clause:  Many employment contracts in Canada contain an “entire agreement” clause.  This clause means that any promises that may have been made to you must be included in the employment contract or they will become worthless.  If the employer has said anything about future salary increases, bonus amounts, promotions, benefits, or other terms, make sure that these promises are included in the written employment contract.  Otherwise, these promises will become worthless.

8.  Jurisdiction:  Generally this is not an issue.  If you are working in Ontario, for example, you should expect that the employment contract will reference Ontario law and will confirm that Ontario courts have jurisdiction over any issues.  However, some employers do try to transfer the jurisdiction, especially if they think they will more likely to get an injunction in a non-competition case in another location (i.e. somewhere in the U.S….).  While these clauses may not necessarily stand up in court, they can create complications.  Employers may sometimes include mandatory arbitration clauses, which have the effect of ousting the jurisdiction of the courts.  These clauses should also be considered carefully.

Conclusion

In Canada, employment law is reasonably favourable to employees.  Many employment terms are “implied,” which means that they are deemed to be part of your employment contract even if they are not in writing.  Most employees would be best off with a simple offer letter confirming the start date, the job responsibilities and the salary and compensation arrangements.

Of course, the flip side is true for employers, who are generally much better off with a more detailed employment contract.  If you are provided with an extensive employment contract containing numerous terms that limit or affect your common law rights, this may be an ominous sign of things to come.  See how flexible the employer is about negotiating these terms.  Speak to current or past employees about how the workplace is actually run and managed.  In some cases, the position may seem like such a great opportunity that you are prepared to overlook all of the problematic terms of the employment contract.  Ultimately, that is a business decision that you have to make based on your personal circumstances.  But you should make that decision only once you are fully informed about the impact of these different contract clauses.

 

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