KerrLaw Logo JAMES D. L. KERR
CLIENT MEMO
TO:           Business Clients FROM:   James D.L. Kerr Lawyer
            17 – 151 Merton St.
            Toronto
, Ont., M4S 1A7
            Tel 416 485-4254
            Fax 416 485-8836
           
E-mail: jkerr@kerrlaw.ca
            www.kerrlaw.ca

            Certified Specialist Civil Litigation
DATE:      September 8, 2004
RE:          EMPLOYMENT LAW (Ontario) – Non-Union


BACKGROUND INFORMATION

Most employers are governed by provincial law. Certain employment is within federal jurisdiction and is governed by federal law; for example, banks and broadcasting. The references in this guide to “statute” law (see below) refer to Ontario statute law and not federal statute law. The “common” law (see below) principles are, however, the same whether the employment is provincially or federally regulated.

When an employer in Ontario employs an employee, the employment relationship is governed by two categories of provincial law: firstly, statute law, and, secondly, common law. In the case of a unionized workforce, the employment relationship is governed, for the most part, by the collective agreement and the information set out in this Guide may not apply.

 The applicable statute law in Ontario consists primarily of the following statutes:

and the regulations that the Ontario government has passed under those statutes.

Copies of the statutes and the regulations are available from the Government of Ontario Bookstore (880 Bay St., Toronto – 326-5300) and on the Internet (http://www.e-laws.gov.on.ca).

The ESA is administered by the Ministry of Labour, Employment Practices Branch, which also maintains a website (http://www.gov.on.ca/LAB/es/ese.htm). The URL’s for the authorities that administer the other statutes mentioned above are set out below in this Guide.

"Common law" is judge-made law which is contained in the various written decisions handed down by judges in lawsuits from time to time. Generally, it is necessary to consult a lawyer to determine the state of the judge-made law at any given time.
 
THE EMPLOYMENT “CONTRACT”

In legal terms, the relationship between employer and employee is called a contract of employment. To most people, a “contract” means a written document and most employees do not have a written contract. Nevertheless, they do have an employment contract, it is just that that contract is oral.

A written contract can consist of a formal legal document or can be simply a letter from the employer offering employment to an employment candidate where the candidate accepts the offer by signing the letter back to the employer.

The terms of a written employment contract are binding so long as the terms of the contract do not limit the employee’s rights to something less that the minimum entitlements provided for in the ESA. Employees cannot "waive" their rights under the ESA.

Employment contracts and hiring letters typically contain provisions detailing job title and description, reporting channels, compensation and benefits. From the employer’s perspective, however, one of the most important, if not the most important, provisions of the contract or hiring letter is the termination provision. The reason for this importance is set out next in this Guide.
 
TERMINATION OF EMPLOYMENT

When an employer finds it necessary to terminate the employment of one of its employees, the employer must comply with both the ESA and the common law. Failure to comply with the ESA can result in a complaint being filed by the employee with the Employment Practices Branch. Failure to comply with the common law can result in a so-called "wrongful dismissal" lawsuit. Until December 1996, a terminated employee could both complain to the Employment Standards Branch and file a lawsuit. Now, however, a terminated employee must choose one or the other course of action.

Terminations of employment may be "with cause" or "without cause". When an employer terminates an employee without cause it must, both under the ESA and the common law, give notice of the termination (so-called "working notice") or make payment in lieu of notice. "Payment in lieu of notice" means payment of the wages and benefits the employee would have received during the notice period had the employee been given working notice. When an employer terminates an employee with cause, it means that the employer is claiming that the employee has committed some wrong serious enough to disentitle the employee to notice. Essentially, this must be something such as theft from the employer or gross insubordination. The employer's need to downsize staff or other financial problems do not qualify as "cause". For incompetence to qualify as "cause", the courts say that the employer must give a series of written warnings together with assistance to the employee to improve performance.

Under the ESA, the applicable ESA notice entitlements are spelled out. The ESA notice requirements are set out at the end of this Guide. Pay in lieu of notice is referred to in the ESA as "termination pay". Essentially, after an initial probationary period of three months during which an employee can be terminated without notice, employees are entitled to one week of notice for each year worked to a maximum of 8 weeks. In the case of larger employers having annual payrolls of $2.5 million or more, employees with 5 years or more service are entitled to an additional payment (called "severance pay") of 1 week's pay for each year of service to a maximum of 26 weeks.

ESA entitlements are minimum entitlements and judges are, under common law, entitled to impose higher obligations on employers. Common law obligations are typically in the range of one months' notice or pay in lieu of notice for each year worked to a maximum of 24 months. This is by no means a rule of law, however, and the amount can vary depending on factors such as the age of the employee and whether or not the employee was, in the first instance, “head-hunted” into the position.

Under common law, employees have a corresponding obligation to make reasonable efforts to lessen the impact of the termination by seeking comparable alternate employment (referred to as the obligation to "mitigate"). To the extent that a terminated employee earns wages elsewhere during the notice period, that amount is deducted from the employer's obligation to make payment in lieu of notice.

PROTECTION FROM WRONGFUL DISMISSAL CLAIMS

An employer cannot lessen or eliminate the obligation to pay termination pay under the ESA. An employer can, however, protect itself against lawsuits for common law claims by having the employee sign an employment contract or hiring letter which eliminates the employee's entitlement to common law pay in lieu of notice and limits the employee's entitlement to ESA termination pay and, where applicable, severance pay. For the contract or a hiring letter to be binding on the employee, however, it must be signed by the employee before the employee accepts employment with the employer.

SETTLEMENT OF EMPLOYEE CLAIMS

Where no contract limiting the employee's rights exists, employers will often attempt to "settle" with the employee to avoid a lawsuit. Settlement usually consists of a compromise payment in lieu of notice and, in some cases benefit continuation, beyond the ESA minimum. An employer should not settle with a terminated employee without first obtaining a signed Release from the employee.

Employees often request a letter of reference as part of a settlement package. Generally speaking, letters of reference should be informational only (that is, limited to facts such as job description and length of employment); qualitative statements (for example, expressing an opinion as to the employee's competence or reliability) ought to be avoided.
 
LAY OFF

Employers sometimes believe that they can avoid pay in lieu of notice by "laying off" rather than "firing" an employee. The ESA permits temporary lay offs of up to 13 weeks in any period of 20 consecutive weeks or 35 weeks in any 52 consecutive weeks if the employer continues to fund a benefit plan for the employee. If the employee is not recalled within the permitted lay-off period, termination pay under the ESA becomes due. The common law does not permit temporary lay off unless the right to lay the employee off is part of the employment contract. Under the common law, a lay off which is not part of a contractual right is considered to be a termination.
 
TERMINATION PROCEDURE

In the event that a termination is necessary, the employee should be called into a meeting where at least two employer representatives are present. At the meeting the employee should be given a letter advising the employee that his/her employment is being terminated. Employers in Ontario are entitled to terminate employees for any reason at all so long as the reason does not infringe the Human Rights Code and, generally speaking, it is better practice not to give a reason in the termination letter; giving a reason only invites argument from the employee. The employee should be treated, at all times, with courtesy and respect. Where an employee is poorly treated in the course of a termination, the court is entitled to punish the employer by awarding increased pay in lieu of notice to the employee (the so-called “Wallace factor”). For the same reason, the employee should not be escorted off the premises by a uniformed guard.

If an employee is terminated for cause, the cause must be specified in the termination letter. Where the employer fails to specify cause, or a particular cause, that cause cannot later be raised in defence of a lawsuit.

Where an employer has terminated an employee, the employer must provide to the employee a Record of Employment for Employment Insurance purposes within 5 days of the termination and must pay all unpaid wages and vacation pay within 7 days of the termination.

OTHER EMPLOYMENT STANDARDS ISSUES

Hours of Work:

Under the ESA, employers cannot require an employee to work longer than 48 hours per week. With the employee’s consent, however, the employer can adopt a work week of up to 60 hours.

Overtime:

Under the ESA, employers must pay time and one-half for every hour worked by an employee over 44 in one week. There is no daily overtime entitlement; overtime applies after 44 hours per week.

The employer and employee may agree to average the employee’s hours over a period not greater than 4 weeks.

The employer and employee may also agree that the employee will receive paid time off in lieu of payment calculated as 1.5 hours paid time off per overtime hour.

Certain classes of employment are exempt from overtime pay. The exemptions are found in the Regulations under the ESA.

A widely held misconception is that employees other than hourly employees (particularly annual salaried employees) are not entitled to overtime. There is no exemption from overtime for an employee simply because that employee's salary is determined on an annual, not hourly, basis.

Eating Period:

Under the ESA, employers must provide a hour unpaid eating period for each 5 hours worked.

Sick / Compassionate Leave:

There is no legal requirement to give employees paid sick or compassionate leave. However, if the employer does have a policy of providing pair sick and/or compassionate time off, then under common law that becomes part of the employment contract which the employer is then obligated to honour.

Employers who regularly employ 50 or more employees must permit 10 days unpaid leave of absence per year for illness, injury or medical emergency of the employee, spouse or same-sex partner, parent, child, grand-parent, sibling or dependent relative.

Vacation Pay:

Under the ESA, employers must provide a minimum of 2 weeks paid vacation for every 12 months worked by an employee. That vacation entitlement may be taken within the ensuing 10 months as determined by the employer.

If the employer grants paid vacation in excess of 2 weeks per year, then that excess becomes part of the employment contract which the employer is obligated to honour and which the Ministry of Labour will enforce.

Statutory Holidays:

The statutory holidays in Ontario are:

Employees are entitled to paid holidays on those days.

Employees can agree with their employer to work on a statutory holiday and to take another working day as a holiday in substitution for the statutory holiday.

Employees who work on a statutory holiday are entitled to be paid double-time and a half.

Employees are entitled to refuse to work on a statutory holiday and on Sunday.

Pregnancy / Parental Leave:

Employers are not required to provide paid pregnancy or parental leave. Employers are, however, required to provide unpaid pregnacy and/or parental leave. At the conclusion of pregnancy or parental leave, the employee is entitled to be reinstated to the position the employee most recently held or to a camparable position if the position no longer exists.

The right to pregnancy and parental leave applies to persons who have been employed for at least 13 weeks and applies to both natural births and adoptions.

An employee is entitled to:

In either case, the employee must give the employer 2 weeks notice.

Equal Pay for Equal Work:

Ontario no longer has a Pay Equity Act. Under the ESA, however, employers cannot discriminate between classes of employees where the discrimination is based on sex. Put another way, employees who perform substantially the same kind of work in the same establishment are entitled to be paid at the same rate of pay.

Benefit Plans:

There is no law requiring an employer to provide benefits to employees (such as group health plans). Where an employor provides a benefit plan, however, the plan may not discriminate between classes of employees on the grounds of age, sex or marital status (including same-sex partnerships). Furthermore, during pregnancy or parental leave, the employer must continue the employee's benefits is the employee elects to to continue his/her participation.
 
LIMITATIONS UNDER THE ESA

Claims to the Ministry of Labour (Employment Practices Branch) under the ESA must be filed within 2 years of the event giving rise to the claim and the employee can only claim back for 6 months; for example, if an employee claims to be entitled to unpaid overtime pay, the employee will only be entitled to overtime pay accrued during the six months prior to the filing of the complaint. The employee can, however, claim back 12 months where there has been repeated contraventions.
 
EMPLOYEE / INDEPENDENT CONTRACTOR

One issue that arises repeatedly is attempts by employers to avoid employment standards, workers compensation premiums, income tax, Canada Pension Plan and Employment Insurance responsibilities by characterizing employees as "independent contractors" and not employees. Typically, this is implimented by having the employee register a business name with the Ministry of Consumer and Business Services after which the employer ceases to withhold income tax, CPP and EI deductions from the employee and ceases to remit the employer's contribution towards CPP and EI.

This is a very high risk strategy and is to be discouraged in all cases other than those in which the person providing the services to the employer is clearly and legally an independent contractor.

The determination as to whether an individual is an employee or an independent contractor is somewhat subjective and is based on an assessment of the following factors:

The Canada Revenue Agency ("CRA" - formerly Revenue Canada) puts out a useful booklet (RC4110 E) entitled "Employee or Self-Employed?" which contains checklists to enable the employer to determine whether or not the employment relationship can meet the test for independent contract. The booklet can also be found on the internet at http://www.ccra-adrc.gc.ca/E/pub/tg/rc4110ed/rc4110ed.html.

Where the employer has classified the individual as an independent contractor but the individual is subsequently determined by the Ministry of Labour or by the CRA to be an employee, the employer can be liable for:

 DIRECTORS/OFFICERS PERSONAL LIABILITIES

Directors and Officers of employer corporations can be personally liable for (among other things):

HUMAN RIGHTS

The Ontario Human Rights Code (the “Code”) prevents discrimination and harassment because of race, colour, sex, handicap and age, to name some of the sixteen grounds, and applies to the workplace. The Ontario Human Rights Commission (the "Commission") administers and enforces the Code. Detailed information on the Code and the workings of the Commission can be found at http://www.ohrc.on.ca/.

One present exception to the age discrimination provisions of the Code is an exemption that permits mandatory retirement at age 65. It should be noted, however, that mandatory retirement is not an automatic employer right. If mandatory retirement is not an express part of the employee’s contract of employment, then forced retirement at age 65 constitutes a wrongful dismissal for which the employer can be sued. In any event, the Government of Ontario has introduced a Bill that will eliminate mandatory retirement effective December 12, 2006.
 
WORKPLACE SAFETY AND INSURANCE

The Workplace Safety and Insurance Act (the “WSIA”) was formerly called the “Workers Compensation Act”. The WSIA is administered and enforced by the Workplace Safety and Insurance Board (the “Board”). Detailed information on the Code and the workings of the Commission can be found at http://www.wsib.on.ca/.

Most employers must register with the Board and pay insurance premiums to the Board. The premiums fund an insurance program that protects employees by replacing lost earnings and covering health care costs resulting from work-related injuries and illnesses. In exchange, the employer is protected from lawsuits by injured employees (in other words, the WSIA eliminates the employee’s right to sue the employer). Premiums can be hefty and, like auto insurance, escalate with the number of claims made under the insurance plan.
One important obligation that employers need to be aware of is the obligation to re-employ an injured employee. This obligation applies to employers who regularly employ 20 or more employees and where the injured employee had worked with the employer continuously for at least one year. The employer is obligated until the earliest of,

Where the employer has re-employed an injured employee in accordance with the re-employment obligation, the employer cannot fire the employee for 6 months (subject to certain exceptions).

The construction industry is exempt from the re-employment obligation.
 
OCCUPATIONAL HEALTH &  SAFETY

The main purpose of the Occupational Health &  Safety Act  (the “OHSA”) is to protect employees against health and safety hazards on the job. The Act establishes procedures for dealing with workplace hazards, and it provides for enforcement of the law where compliance has not been achieved voluntarily. The OHSA is administered and enforced by the Ministry of Labour. Detailed information on the OHSA and enforcement by the Ministry can be found at http://www.gov.on.ca/LAB/english/hs/index.html.

Under the OHSA there is a general duty on employers to take all reasonable precautions to protect the health and safety of employees. In addition, the Act and regulations set out many specific responsibilities of the employer. For example, there are duties that specifically relate to toxic substances, hazardous machinery, employee education and personal protective equipment.

Under the OHSA, employees have the following rights:



DISCLAIMER: The foregoing is not intended to be a comprehensive guide to the applicable law. General Client Memoranda and mailings from James D.L. Kerr ● Lawyer are intended to inform clients and acquaintances with respect to current issues that may be of interest to them. Memos are current to the date shown on the Memo. The law is constantly changing, however, and for that reason a Memo may not be completely accurate after it's stated date. Where circumstances warrant, the advice of a lawyer or other qualified professional should be obtained.

2005 James D.L. Kerr