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.

 

Breach of Fiduciary Duty and Non-Competition: Two Ontario Court of Appeal Decisions: Two Very Different Results.

The Ontario Court of Appeal has issued two recent decisions dealing with breach of fiduciary duty in an employment context.  In one case, GasTOPS Ltd. v. Forsyth (2012) ONCA 134, issued on March 1, 2012, the Court of Appeal upheld an award of almost $20M against a group of four former employees of GasTops.  In the second case, Veolia ES Industrial Services Inc. v. Brulé (2012) ONCA 173, issued on March 20, 2012, the Court of Appeal overturned a trial award of $465,000 that had been issued against Mr. Brulé, a former employee of Veolia.  Both cases provide some useful information about the nature of fiduciary duties in employment relationships and the potential costs of breaching these duties.

The GasTOPS case took seven years until it was completed.  There were 295 days of evidence spread over 3 years, with 70,000 pages of exhibits and 3,000 pages of written submissions.  It took the Court two years to produce the trial reasons, which were 668 pages in length.  The Court of Appeal heard the appeal in the matter over a period of four days and issued a 32 page decision.  One aspect of breach of fiduciary duty cases is that they can be very expensive and time consuming, regardless of who eventually wins.

The Trial Court had held that the four defendants were the designers of the core program of the GasTOPs products.  They were part of the senior management.  They all left to start up a new competing business together and took additional employees with them.  They then pursued “virtually every existing and potential GasTOPS’ customer, used the confidential information that they had obtained while at GasTOPS and also used GasTOPS’ technical information.  In short, they took virtually the whole of the business from GasTOPS and used it in their new venture.  In their first three years of business, nearly 80% of their business came from GasTOPS’ clients.  The Court ordered 10 years of lost profits against these four defendants and their new company.   The Court of Appeal had little difficulty upholding the finding that all four employees were fiduciaries, that 10 years was a reasonable time period for measuring damages and that the four defendants were jointly and severally liable.

The other decision issued by the Court of Appeal very different.  Mr. Brulé had been the acting CEO of Veolia ES Industrial Services Inc., a company that he had originally founded and then later sold.  He had an employment contract with Veolia that contained a non-competition provision.  The clause was poorly designed and did not wind up providing the protection that Veolia thought it had.  Mr. Brulé resigned from Veolia and provided notice of resignation as he was required to do.  On his way out the door, he made copies of company binders which contained various tenders and bids for public projects.  A few months later, he successfully bid on a project with the City of Ottawa with his new company.  Veolia sued for breach of fiduciary duty.

At trial, Veolia was awarded $465,000 plus costs against Mr. Brulé.  The Trial Court held that the poorly worded employment contract should be “blue-penciled” and fixed in a way that seemed to reflect the parties’ intention.  It ruled that Mr. Brulé was subject to a two year non-competition agreement and that he had breached it.  On appeal of this issue, the Ontario Court of Appeal overturned this finding.  It referred to the Supreme Court of Canada decision in KRG Insurance v. Shafron and underscored the fact that Canadian courts will rarely “blue-pencil” non-competition agreements.  Since the agreement could not be “fixed,” Mr. Brulé had not breached any agreement.

The Trial Court also held that Mr. Brulé breached his fiduciary duties.  Since he took the binder and since he bid on the City of Ottawa project without telling his former employer, the Trial Court found him liable.  The Court of Appeal overturned both of these findings.  It held that the binders were filled with public documents and there was no proof that Mr. Brulé had taken or used anything that was confidential.  Moreover, it emphatically stated that he had no duty to his former employer to tell them that he was bidding on a project against them.  In short. unlike in the GasTOPS case, Mr. Brulé did not take a big chunk of his former employer’s business.  He entered into a bidding competition and won it fairly, without breaching any duties.  The Court of Appeal fully overturned the award of damages and ordered that Veolia pay Mr. Brulé’s legal costs.

Either or both of these cases may yet be appealed to the Supreme Court of Canada.  But they each provide different information about the nature of fiduciary duty claims and non-competition issues.  Where an employee or group of employees takes confidential information, uses it and competes unfairly against a former employee, significant damages may be awarded.  But where an employee, even a very senior employee, leaves and winds up competing against his or her former employer, that is not a breach of fiduciary duty on its own.  There must be some proof that the employee has misused confidential information that belonged to the former employer.

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