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In welcoming a new year, Monkhouse Law has compiled their list of Top 5 Trends in Employment Law for 2018 based on court decisions released this year which may have distinguished themselves from earlier precedents, clarified ambiguities in employment legislation, and established new legal principles.
This fifth year of our ‘top 5’ we have decided, as opposed to limiting to cases, to do trends/themes. This is because two of the most obvious trends are not cases, per-say, but as you will see legislation and a change in how society deals with sexual harassment in the workplace.
Our past ‘top 5’ can be found:
Runner Up : Boundaries of Parliamentary Privilege
Before delving into some of the trends, a runner-up that deserved an honourable mention is the interesting Supreme Court of Canada decision of Chagnon v. Syndicat de la function publique et parapublique du Quebec, 2018 SCC 39.
Establishing boundaries for parliamentary privilege is the essence of Chagnon, where three security guards were terminated from the National Assembly of Quebec. The former employees’ union grieved their terminations under their collective agreement before a labour arbitrator but the President of the Assembly objected on the basis that these terminations fell parliamentary privilege: the immunity that allows legislatures to operate without outside interference. The Speaker was essentially arguing that no one was able to review his decision because his decision was covered by parliamentary privilege. His argument came to two specific types of privilege: over the management of employees and to exclude ‘strangers’ (people not apart of the legislature) from the legislative assembly. After working its way through the Quebec Superior Court and the Court of Appeal of Quebec, the Assembly appealed the lower court’s decision to the Supreme Court of Canada.
For a matter to fall within the scope of parliamentary privilege, it must be “so closely and directly connected” to the functioning of the Assembly that external interference would prevent the Assembly from fulfilling its duties with “dignity and efficiency” (Chagnon v. Syndicat, at para. 29). Considering that the former employees were security guards whose actual duties did not grant them the authority to prevent ‘strangers’ from entering the Assembly, the “exclusion of strangers” privilege would not apply. Their specific jobs also did it allow them interaction with members of the Assembly, so the management of their employment would not be so closely and directly connected to the functions of the Assembly.
In a majority decision, the SCC ruled that parliamentary privilege only covers decision that is necessary for the legislature to fulfill its constitutional role and since the duties of the security guards were not so closely intertwined with the functions of the Assembly that an external review would prevent its ability to function. Therefore, the security guards’ termination did not fall under either of the categories for parliamentary privilege and the terminations were not exempt from external review.
While this case was not part of an identifiable ‘trend’ in 2018, it certainly will have an impact on legislatures in reminding them that parliamentary privilege is highly fact-specific and does not give them a license to do whatever when it comes to managing and terminating employees. It is was also noteworthy as to how the court balanced the two conflicting, constitutionally-granted ideas of parliamentary privilege and freedom of association.
Trend Number Five: Cost Awards
From successful defences against counterclaims to larger awards due to rejected Rule 49 offers, 2018 saw the expanding legal principle of what constitutes reasonable costs and awards in a wrongful dismissal matter.
In Ruston v. Keddco Mfg. (2011) Ltd., 2018 ONSC 2919, the $1.7 million counterclaim by the Defendant alleged that the former employee manipulated financial statements and was negligent and/or wilfully blind relating to the alleged purchasing of excess inventory. The judge found that there was no basis for these allegations and awarded punitive and aggravated damages. Further, the judge awarded this 11-year, 54 year old President, 19 months’ pay in lieu of notice including base salary, car allowance, RRSP contributions, pay in lieu of benefits, and his cash bonus both for time worked and during the notice period. Aside from the success on the merits, the Defendant was also ordered to pay substantial indemnity costs in the amount of $546,684.73 for, among other things, rejecting a Rule 49 at the beginning of the litigation, pursing unfounded allegations of fraud, and by increasing the costs of the plaintiff due to the defendants actions or inactions.
This decision comes on the heals of two 2017 decision which say high costs awards awarded against employees. In Cordeiro v. Pinnacle Caterers Ltd., the judge found that the plaintiff stole money from their former employer and the plaintiff was justifiably terminated for cause. During costs submissions, the plaintiff argued that the costs should be lower due to the former employee not being a high earner and the employer being a large corporation. The judge stated in the endorsement that while sympathetic to the plaintiff’s financial burden, it does not take away from the fact that he stole from his employer and refused numerous settlement offers prior to trial. Due to these factors, the judge then awarded the employer a higher scale of costs because the plaintiff rejected a reasonable offer under Rule 49 and also exercised his discretion by rounding down to $150,000.00.
In Dunsmuir v. Royal Group, Inc., the former employee held a senior position and acted as a member of the board of directors. The plaintiff had three distinct and serious instances of misconduct that breached his fiduciary duties and duty of fidelity, resulting in his termination for just cause. After the trial judge found that the plaintiff was justifiably terminated and consequently must pay costs, costs submissions were heard. The Judge ordered $725,651.30 in costs be paid to the defendant when considering the nature of the litigation, both parties were involved in ‘overkill’ particularly when it came to the inefficient use of technology at trial and that the defendant suffered the brunt of disclosure costs.
The above cases show how pre-trial settlement offers, behaviour over the course of termination proceedings and at trial can affect the quantum of costs awarded, which is definitely a trend that will continue into 2019.
Number Four: Bonus & Compensation Inclusions
Making it to fourth on our list is the case law surrounding how to deal with variable or incentive-based compensation in a wrongful dismissal claim.
In Bain v. UBS Securities Canada Inc., the employer brought an appeal of the summary judgment decision arguing that approximately 60% of the former employee’s bonus (a value of $1.2 million) would not be payable because it was in the form of stocks that would not have vested during employment or the notice period. The judge drew a legal test from Paquette, one of our firm’s own successful appeals, to analyze this issue of whether a terminated employee is entitled to damages on account of a lost bonus:
a) Whether the employee has a right to compensation for lost bonus; and
b) Whether there is any language in the bonus plan that alters or removes that right to compensation for the lost bonus.
Applying this test, the court determined that the bonus was payable in damages for a ‘lost opportunity to earn a bonus’ and that the bonus plan did not exclude the employee’s claim for the deferred part of his bonus.
This issue of bonuses through notice periods was again addressed in Chambers v. Global Traffic Technologies Canada Inc. Here, the former employee was 57 years old and previously held a managerial position for 2 years and 6 months. Upon reviewing the factors of the case, the judge awarded 9 months’ reasonable common law notice and had to determine whether the plaintiff was entitled to compensation for his stub bonus for time worked and over the course of his notice period.
The defendant argued that since the bonus plan included the stipulation that an employee must be employed to receive any payout, the plaintiff lost any entitlement to his bonus upon termination. The judge rejected this argument due to previous case law (see Lin v. Ontario Teachers’ Pension Plan; Paquette v. TeraGo Networks Inc.) establishing that an ambiguous “active employee” clause is insufficient to prevent the payout of an employee’s bonus upon termination and over the course of their notice period. Therefore, the court awarded the plaintiff his stub bonus prior to termination and the bonus he would have earned over his notice period. Further, since the last performance review indicated a higher target achieved but no other evidence to specify the quantum of bonus, the judge fixed the annual bonus amount of $45,000.00.
Going beyond bonuses, this year we also saw some development in the expansion of compensation to include stocks, shares, and incentive plans. In Manastersky v. Royal Bank of Canada and RBC Dominion Securities Inc., the plaintiff was a former senior and high-earning employee with tenure of 13 years before being terminated without cause. His compensation included a base salary of $200,000.00, annual performance bonus, and participation in the mezzanine fund’s carried interest plan (“CIP”). After determining 18 months as the appropriate notice period, the trial judge focused on the more contentious issue: Whether the plaintiff’s entitlements included compensation representing the lost opportunity to earn and to additional entitlements under the CIP during the notice period.
The judge noted that pay in lieu of reasonable notice ought to put the employee back into the same financial position an employee would have been in had they received the appropriate notice and worked until the end of it. Damages are also not limited to lost wages, but may include payments in other forms of compensation such as bonus, stock options, pension, and other benefit plans that are integral parts to an employee’s compensation. Applying the Bain test regarding whether a bonus is integral to an employee’s compensation, the judge determined that the CIP fit the criteria. Since the CIP was a significant and non-discretionary variable form of compensation that represented more than half of the employee’s income over his 13 year tenure and without any limiting provisions, the employee was entitled to damages representative of it over his notice period.
Based on the above, it’s becoming clearer that compensation at the time of termination is broader than just base salary and benefits. The discussion has also moved from when the ‘payment date’ is of the incentive-based compensation to what would have been earned as well as accrued during the notice period and whether the contract is sufficiently clear in ousting an employee’s entitlement to it during the notice period. It’s likely that this trend will continue to expand due to the varying complexity of employment contracts and incentive plans.
Number Three: Unclear ESA Clauses Continue
At number three, we’ve included the continued back and forth in the interpretation of termination clauses. Over the course of this year we’ve had numerous cases dealing with the very common employment law issue of whether the termination clause conforms to the standards outlined in the ESA.
On one side of the spectrum, we have Bergeron v. Movati Athletic (Group) Inc., 2018 ONSC 885. Upon analysis of the disputed termination clause, the judge determined that it was ambiguous and therefore invalid. To be more specific, the judge cited Machtinger and noted that the failure to provide clear warning to the employee that their employment may be terminated upon the provision of no more than the minimum amount of notice prescribed by the ESA creates an ambiguity in the termination clause. Due to this invalidity, the judge awarded reasonable common law notice, bonus, and benefits over the notice period to the Plaintiff.
As in Wood and Machtinger, this case reinforces the legal principle that for a termination clause within an employment contract to effectively contract out of common law it must be worded in a manner that adheres to the ESA otherwise the employer will face costly consequences.
However in contrast and on the opposite side of this spectrum is Nemeth v. Hatch Ltd., 2018 ONCA 7. This decision is actually an appeal by the former employee whose case was dismissed by the motion judge. The termination clause read as follows:
“employment may be terminated by either party with notice in writing. The notice period shall amount to one week per year of service with a minimum of four weeks or the notice required by the applicable labour legislation”
In this decision, the appeal judge decided on three key issues. First, he determined that explicit stipulations in a termination clause are not necessary to displace the common law. Rather, these stipulations can be either explicit or implied. Second, the appeal judge determined that the termination clause does not contract out of the ESA. He highlighted that there is a difference between contracting out of minimums and being silent regarding them. For Nemeth’s clause, the judge interpreted the clause to be silent and therefore not contracting out of ESA minimums. Finally, the termination clause provides minimums and not a “ceiling” so the former employee’s entitlements were actually 19 weeks’ notice total.
These two decisions revolved around the same issues but came to drastically different conclusions within the same year. It will be interesting to see if this trend of contradictory interpretations of ESA clauses continues into 2019 or if we might get some consistency.
Number Two: #MeToo Continues to Rock the Boat
With the prominent headlines we continue to see regarding this movement, at number two we have the influence of the #MeToo movement across Canada. This impact can even be seen in our political landscape earlier this year. When serious allegations of sexual misconduct were brought against the then leader of the Conservative party, Patrick Brown, he stepped down and resigned due to the weight those allegations carried.
From providing a stronger platform for people to speak up, creating a more open dialogue, and affecting legitimate change and instigating accountability, the #MeToo movement also played a strong role in our employment laws. In February 2018, a judge granted an extension for a class action suit against the RCMP, in regarding sexual harassment faced by the women in its ranks since September 1974. Not only is was the settlement of the class action, where some women will receive up to $220,000.00in compensation , the decision to extend the deadline for women to make their claim shows the recognition of how significant and long-lasting an impact sexual harassment can have on the lives of people who suffer it.
With how significant these particular claims are, however, it is also important to be careful in which venue is chosen to pursue their claims for sexual harassment or assault in the workplace. In Decision No. 3096/17, 2018 ONSWIAT 1563, the Workplace Safety and Insurance Appeals Tribunal held that when an employee works for an employer governed by the WSIA, then they cannot sue their employer if a) they are sexually assaulted by a co-worker and b) the employee is eligible for the receipt of WSIB benefits. Although the decision still allowed for the employee to sue her co-worker personally, it emphasizes the importance of choosing a venue that would maximize rather than restrict one’s claim.
Similarly, in Watson v The Governing Council of the Salvation Army of Canada, the Court found that there were genuine issues requiring a trial and a signed full and final release for the benefit of the employer releasing claims “arising out of the employment or termination of that employment” did not successfully release the company and the aggressor from claims of sexual misconduct and harassment and associated claims.
Number One: Major Changes To Employment Legislation
Taking the top spot of our 2018 list, we’ve included the convoluted and confusing timeline surrounding the development and changes made to our employment legislation.
In November 2017, as one of Kathleen Wynne’s last acts as Premier of Ontario, Bill 148 was passed. This Bill promised significant changes to our provincial employment laws, such as an employee’s entitlement to two paid sick days per year, placing the onus on the employer to prove a worker is not an employee, equal pay for equal work, an increase in vacation entitlement for employees working for the same employer for more than 5 years, and increasing the minimum wage to $15 per hour beginning in 2019.
Then just over a year later, in November 2018, the freshly elected Doug Ford (brought into power after trend #2, #metoo took down Patrick Brown) government pushed and received royal assent for Bill 47. This “Make Ontario Open for Business Act, 2018” which repealed most of the rights awarded to employees by Bill 148. For instance, the onus is back to being on the worker seeking protection to prove they are an employee, there is no equal pay for equal work, and the increase to minimum wage has been pushed until 2020 to rise with inflation.
One would hope that this broad sweeping reversal would provide some clearer guidelines moving forward. However since the implementation of Bill 47, there have been continued proposed changes to our employment laws that will continue to result in confusion for employees and employers alike. Bill 57 “Restoring Trust, Transparency and Accountability Act, 2018” was passed at the end of 2018 affecting indefinitely postponing the Pay Transparency Act and Bill 66 “Restoring Ontario’s Competitiveness Act, 2018” was introduced will also affect labour and employment laws, for instance on the process for excess weekly hours of work agreements and overtime averaging agreements.
That wraps up our Top 5 Employment Law Trends of 2018. If one thing can be taken away, let it be this: Employment law is unpredictable but always interesting. Stay tuned for next year’s Top 5 because we predict that there just might be some familiar cases along the way. Happy holidays and New Year – may 2019 bring some consistency and stability to employment law.
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