While each of these cases could have its own blog post, we have decided to create a list of important cases for employers to be aware of from 2022 progressing into 2023. The result is that this post will be an extra-long post packed with exciting information for those employment law connoisseurs.
Discretionary Bonus Clauses
In Bowen v JC Clark Ltd. 2022 ONCA 614, the Court of Appeal was required to determine whether or not individuals who were dismissed correctly without cause under their employment contracts were entitled to a discretionary bonus. The contractual provision for the discretionary bonus was as follows:
At the total discretion of the Company, you may be eligible for a bonus at the end of each fiscal year depending on factors that include your personal performance and the profitability of the Company.
The two employees had their employment terminated on July 16, 2014, and had worked with the employer from December 3, 2012, at the time of their termination they were provided two weeks’ salary as well as $577 in lieu of notice.
Curiously, even though payments for bonuses were only decided in December of each year, well after the termination without cause, the Court of Appeal determined that the individuals were owed $116,000.00 each based on a pro-rated amount for their time period within July. This amount was based on a pro-rated amount of what other employees in a similar position had received for the same year. In doing so, the Court indicated that “where an employment agreement provides for a discretionary bonus, there is an implied term that the discretion will be exercised in a fair and reasonable manner.”
Notably, there was no language to limit when the amounts were payable related to the discretionary bonus, or what would occur with respect to a termination of employment.
For Cause Termination – ESA Termination Pay May Still be Required
Employers need to be aware that despite being able to prove cause for a termination of employment, they may not be able to avoid paying Employment Standards Act, 2000, termination pay requirements due to the higher threshold found under O.Reg 288/01 in the ESA regulations.
In the case of Render v ThyseenKrupp Elevator (Canada Limited) 2022 ONCA 310, the question arose as to whether the employee was entitled to termination pay, despite a finding that the employee had been properly terminated for cause. The case involved an employee who was summarily dismissed from his employment for engaging in sexual harassment. Prior to being dismissed, the employer had implemented a zero-tolerance discrimination and harassment policy. At trial, the Court found that the employee had touched the buttocks of a female co-worker contrary to the policy and that this behavior resulted in the employer having just cause to dismiss the employee.
There is a requirement on a termination in Ontario, that an employee be provided the statutory minimums for termination (i.e. termination pay, severance pay, and benefit continuation), unless they meet the threshold found in the regulations. Specifically, under O.Reg 288/01, an employee is entitled to their termination pay unless they are guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and that has not been condoned by the employer.
The Court of Appeal determined that in Render the employee was entitled to his statutory benefits, despite the trial judge’s (and it’s decision to uphold the trial judge’s) finding that the employee was involved in sexual harassment. Making the determination, the Court of Appeal indicated that the test is higher than for just cause, citing Plester v Polyone Canada Inc. the Court stated:
“In addition to providing that the misconduct is serious, the employer must demonstrate, and this is the aspect of the standard which distinguishes it from ‘just cause’, that the conduct complained of is ‘wilful’. Careless, thoughtless, heedless, or inadvertent conduct, no matter how serious, does not meet the standard. Rather, the employer must show that the misconduct was intentional or deliberate. The employer must show that the employee purposefully engaged in conduct that he or she knew to be serious misconduct. It is, to put it colloquially, being bad on purpose”.
The Court of Appeal indicated that it did not believe that the conduct of touching a female co-workers buttocks rose to the level of wilful misconduct. It stated that while the touching was not accidental, there was no finding made by the trial judge that it was pre-planned, therefore the employee did not meet the threshold under O.Reg 288/01 and was entitled to termination pay under the ESA.
Non-Competition Clauses and Impact of Changes to the Employment Standards Act
There was a recent amendment to the Employment Standards Act, 2000, that impacted non-competition clauses for Ontario employers. The change to the legislation was made under 67.1 and received Royal Assent on December 2, 2021.The change indicates that employers cannot enter into non-competition agreements with employees, unless specific conditions are met, one is that they be considered an executive, the other is in a sale of business scenario.
A key question that arose from the introduction of the legislation was: what would happen to existing non-competition clauses within employment agreements that were entered into by the parties prior to the date of the legislation coming into force?
In Parekh et al v Schecter et al, 2022 ONSC 302, the Superior Court of Ontario was required to answer the question. The clause being reviewed found within an Associate Agreement dated January 20, 2022 was the following:
Non-Competition. The Associate shall not during the Term of this Agreement and for two (2) years thereafter, either directly or indirectly, whether as a proprietor, partner, shareholder, employee, associate or otherwise, carry on or be engaged in the practice of dentistry anywhere within a five (5) kilometer radius of the Premises.
The Court affirmed at paragraph 44 in the decision, that the change in the legislation did not void the non-competition clause within the agreement entered into before the legislation came into force. This is an important decision for employers and employees who have previously entered into non-competition agreements, or have non-competition clauses in their contracts, and those documents pre-date December 1, 2021. Regardless of the legislation, any non-competition clauses will be subject to the applicable common law tests surrounding enforceability. However, at least the parties now know for certain that if enforceable they will not be voided by the ESA legislation.
A question that frequently arises for any overtime claim is, when was the claim discovered? There is a two-year limitation period under the Limitations Act, 2002, S.O. 2002 under section 4. However, that is subject to the discoverability test found in section 5. In Fresco v Canadian Imperial Bank of Commerce 2022 ONCA 115, the case involved a class action for overtime by the bank’s employees spanning a past the 2-year limitation period. The Court of Appeal analyzing the limitation issue for the overtime claim, discussed the comments of the motion judge, indicating that it was in agreement with when limitation periods commenced:
“limitation periods begin to run as soon as the claimant reasonably discovers that she has sustained a loss, that the loss was caused by the defendant and that taking legal action was appropriate”.
The motion judge found that the employees would have known about overtime every time they received their bi-weekly pay, and if not that the loss was caused by the employer. The motion judge determined two of the parts of the test would have been satisfied:
- That the limitation periods begin to run as soon as the claimant reasonably discovers that they have sustained a loss; and
- The loss was caused by the defendant.
The motion judge determined that despite its finding that these two parts of the discoverability test were met, it could not be determined whether each employee would realize that a proceeding would be an appropriate means to remedy it, a requirement under the Limitations Act. This was for two reasons:
- Some of the class members feared reprisal and were afraid they could lose their job if they sued the bank for unpaid overtime; and
- The class members relied on the repeated misrepresentations that the banks overtime policies complied with federal labour law.
The Court of Appeal disagreed with the first reason, and indicated it was not an appropriate reason for finding that the limitation period did not apply. However, the second reason, mainly that the employee reasonably relied on the representations of the Bank would require an individual assessment. The Court indicated the following:
We are not persuaded that the first factor, that “some (and perhaps many) of the class members feared reprisal and were afraid that they might lose their job if they sued the bank for unpaid overtime” is a valid basis on which the limitations period can be suspended. However, there is merit in the second factor of reasonable reliance on misrepresentation. The applicable law is set out in this court’s decision in Presley v. Van Dusen Sharpe J.A. discussed the governing principles, and then referred to one of the “guiding principles” expressed by Pardu J.A. in Presidential MSH Corp. v. Marr Foster & Co. LLP, : “Resort to legal action may be ‘inappropriate’ in cases where the plaintiff is relying on the superior knowledge and expertise of the defendant, which often, although not exclusively, occurs in a professional relationship.
Essentially, if the employees could show that they reasonably relied on the representations concerning overtime made by the employer, the claims would not be barred.
Employers need to carefully consider their overtime policies and what is communicated. If the policy contradicts the ESA or the Canada Labour Code, or otherwise provides an interpretation that is false, an employer may be on the hook for considerable amount of overtime despite the two-year limitation period. Employers may also have employees who they believe are not entitled to overtime due to the regulations found in the Employment Standards Act. These employees may also have a potential claim in overtime dating further back than two-years if they were incorrectly classified and were told that they are not required to be paid overtime.