Employers: Review your Employment Contracts to ensure they do not run afoul of Default and Waksdale

Have D&DCPD review your contracts before you find out you cannot rely on them.

A recent decision by the Ontario Superior Court of Justice underscores the critical importance of updating employment contracts to ensure compliance with the Employment Standards Act, 2000 ("ESA"). In Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029 ("Dufault"), the Court struck down a termination provision that allowed the employer to terminate an employee’s employment in its "sole discretion… at any time." Following the reasoning in Waksdale v. Swegon North America Inc., 2020 ONCA 391 ("Waksdale") this, along with other deficiencies, rendered the termination clause unenforceable, resulting in significant liability for the employer.

These decisions serve as a crucial reminder that employment contract language that may have been enforceable in the past may no longer withstand legal scrutiny. Employers should act now and contact D&DCPD to avoid costly litigation and liability by proactively updating their employment agreements.

Key Takeaways from Dufault and Waksdale

1. Termination Provisions Must Align with ESA Requirements – The Court reaffirmed the principle established in Waksdale, that if any part of a termination clause contravenes the ESA, the entire clause is unenforceable.

2. Provisions Allowing Termination "At Any Time" Are Problematic – The Court found that language allowing an employer to terminate employment "at any time" conflicts with the ESA’s job protections, particularly regarding statutory leaves of absence or protections against reprisals.

3. Compensation Beyond Base Salary Must Be Considered – The ESA defines "wages" broadly, including various forms of compensation beyond base salary. Any attempt to limit termination entitlements solely to base salary may be unenforceable.

The Risk for Employers

In Dufault, the employer’s termination provisions were struck down, leading to the employee receiving nearly two years’ pay – the entire remaining term of their fixed-term contract. This decision highlights the risk of outdated employment agreements containing clauses that could expose employers to substantial liability. Waksdale upheld the ideal wherein courts will favor an interpretation of the ESA that “encourages employers to comply with the minimum requirements of the Act” and “extends its protections to as many employees as possible”, over an interpretation that does not do so.

What Employers Should Do

• Ensure that any new draft contract does not leave room for interpretation - Employers who do not currently have employment contracts should ensure that when reviewing a drat contract, the wording of the clauses conform to legislation leaving no ambiguity.

• Review and Revise Employment Contracts – Contact D&DCPD to assess whether existing termination clauses include problematic language, particularly references to termination at the employer’s "sole discretion."

• Ensure Compliance with the ESA – Any contractual provision that does not fully comply with the ESA may be found unenforceable, potentially resulting in significant financial consequences.

• Consult with D&DCPD – Given the evolving case law, employers should seek guidance to ensure that their employment agreements remain valid and enforceable under current jurisprudence.

What does an enforceable part of a contract mean?  Is the entire contract void or just the termination clause?  How do I update my contracts and ensure they are now enforceable?  For these and any other questions, visit our website at www.dndcpd.com or call us at 613-866-8637 immediately and we can review and update your contracts to minimize the risk of future liability.  

The Importance of Legal Review for Settlement Agreements: Avoiding Costly Oversights - Preston v. Cervus Equipment Corporation

When faced with the conclusion of employment, whether through termination or mutual agreement, employees are often presented with settlement documents that aim to resolve any outstanding claims between them and their employer. While it may be tempting to sign and move on, it is critical to have these documents reviewed by a qualified legal professional. Failure to do so could result in unintended consequences, including the forfeiture of rights or benefits you may have assumed were secure.

A stark reminder of this risk can be found in the Ontario Court of Appeal decision in Preston v. Cervus Equipment Corporation. This case underscores how crucial it is to understand the full scope of the settlement agreement before signing.

Case Highlight: Preston v. Cervus Equipment Corporation

In this case, the employee, Preston, sought to claim previously vested stock units following his termination. These stock units were governed by a company plan that provided automatic vesting rights upon termination. However, Preston had signed a settlement agreement that included a broad and specific release of claims against the employer.

Preston argued that the stock units were not part of the wrongful dismissal settlement since they were already his property. Despite this, the Ontario Court of Appeal found that the language of the settlement agreement unequivocally precluded any claims to the vested stock units. The court emphasized:

The broad release language in the settlement agreement explicitly barred all claims, including those related to the stock units.

Contextual factors, such as Preston’s belief that the stock units were separate from the settlement, did not override the clear wording of the agreement.

The lower court had erred by misapplying the doctrine of narrow construction for broad releases and improperly weighing the economic implications of the settlement.

As a result, Preston’s $76,000 claim for the vested stock units was barred, demonstrating how seemingly minor oversights in understanding the terms of a settlement agreement can have significant financial repercussions.

Why You Need Legal Advice Before Signing

Broad and All-Encompassing Language: Settlement agreements often contain clauses that release the employer from all current and future claims, whether or not the employee is aware of them at the time. Without professional review, employees may unknowingly waive rights to significant entitlements.

Complex Legal Jargon: Settlement agreements are typically drafted by the employer’s legal team and are designed to protect their interests. Legal professionals can help identify overly broad clauses and explain their implications in plain language.

Hidden Consequences: Certain benefits or entitlements, like vested stock units, deferred compensation, or bonuses, may appear to be excluded from the agreement but could be inadvertently waived by signing a broad release.

Ensuring Fair Compensation: Legal professionals can evaluate whether the settlement offer adequately compensates you for all outstanding claims, including statutory entitlements and common law damages.

Protecting Your Future: A poorly understood settlement agreement can have long-term impacts on your career and financial stability. For example, restrictive covenants like non-compete or non-solicitation clauses may limit your future employment opportunities.

Key Takeaways

The Preston case serves as a cautionary tale for employees navigating settlement agreements. It highlights the importance of:

Thoroughly understanding the terms of the agreement.

Recognizing the potential for broad release clauses to encompass entitlements you might not expect to be affected.

Seeking legal advice to ensure that your rights are protected and your claims are fully resolved on fair terms.

Before signing any settlement documents, take the time to consult a legal professional who can review the agreement, explain its implications, and negotiate on your behalf if necessary. The investment in legal advice is a small price to pay compared to the potential financial losses and long-term consequences of an unexamined agreement.

By being proactive and informed, you can protect your rights and avoid the pitfalls experienced by Preston in his case against Cervus Equipment Corporation.

The Legal Risks of Paying Workers in “cash” or “under the table”

Just because you pay in cash doesn't mean a worker cannot be considered an employee

Many small business owners hire workers paying them “under the table” or by “cash”.  However, depending on the amount of times this worker performs work, the length of service on each occasion (including continual work) and the work performed this can lead to unexpected issues to arise.  Especially if a worker is terminated or informed that there is no work for a period of time.  Paying employees in cash may seem like a good way to manage the headaches of payroll or during times when the work flow is heavy, but this practice comes with significant legal risks. Employers who opt for cash payments might inadvertently blur the lines between independent contractors and employees, exposing themselves to potential claims for wrongful termination and other employment-related liabilities.

Employee vs. Independent Contractor

The distinction between an employee and an independent contractor is crucial. Employees have certain rights and protections under labor laws, such as minimum wage, overtime pay, and the right to claim wrongful termination. In contrast, independent contractors operate under a different legal framework, with more freedom and fewer protections.

The Risk of Misclassification

Employers who pay workers in cash may fail to properly classify them, leading to misclassification. If a worker is deemed an employee rather than a contractor, the employer could face severe penalties, including back pay, taxes, and fines. Moreover, the worker may claim benefits and protections associated with employee status, such as wrongful termination, overtime pay, and workers' compensation.

The Importance of Contracts

To mitigate these risks, employers should clearly define the nature of the working relationship from the outset. Treating workers as independent contractors requires more than just paying them in cash; it necessitates a formal contract outlining the terms of engagement. The contract should specify the scope of work, payment terms, and the absence of an employer-employee relationship. This documentation is vital in protecting employers from potential legal disputes and ensuring compliance with labor laws.

Conclusion

While paying workers in cash might appear convenient, it exposes employers to significant legal risks. The best practice is to treat such workers as independent contractors by establishing clear, written contracts.

Kindly contact us though our website at www.dndcpd.com or by email at dndcpd@gmail.com to discuss how to protect your business and what type of contracts would be required to ensure you comply with all applicable laws and regulations. Taking these steps can prevent complaints to the ministry or costly legal battles.