April 20th, 2018
What is Employment Law?
Employment law refers to the rules that govern relations between employers and employees. The term “employment law” is usually juxtaposed with the term “labour law”, the latter being concerned with the process of negotiating and enforcing terms and conditions of employment under a collective agreement. So, for example, when a lawyer uses the term “employment law”, it’s a good bet that they are referring to the rules that govern relations between an individual employee and his or her employer and not the relationship between a union and an employer.
In Canada, employment rules are usually made at the provincial level, except where the issues are integral to a federal work or undertaking. Some examples of employment industries governed by federal law include, but are not limited to: employees of the federal government and federal Crown corporations, employees engaged in the telecommunications industry (e.g. telephone, radio, and television), employees engaged in international or inter-provincial transportation, and bank employees. The Canada Labour Code applies to these employees.
For most other employees who do not work in these industries, provincial rules apply. Specifically, the Employment Standards Act, 2000 (“ESA”), and the regulations created thereunder, regulate the relationship between an employer and an employee in Ontario.
The Interplay between the ESA and the common law
It is useful to think of the ESA as a piece of legislation that sets out certain minimum standards that all employers have to meet. For example, the ESA sets out certain minimum standards relating to wages, vacation, hours of work and overtime, minimum notice requirements after a termination of employment, and leaves of absences. An employer cannot impose conditions of employment on terms less favourable than the terms set out in the ESA. Furthermore, an employee and employer are, for the most part, prohibited from contracting out of the ESA. So, for example, a clause in an employment contract that sets out a notice period less than the ESA requires would be unenforceable because that clause violates the ESA.
While employment relationships are governed by the ESA, they are also governed by the common law. In contrast to the ESA, the common law usually sets out rules that are far more generous to an employee. The term common law refers to “judge-made law” that arises as precedent. For example, when the Ontario Court of Appeal renders a decision on a certain issue, that decision sets a precedent to which subsequent courts are now bound. That decision becomes law, and you and I are bound by that decision just as we are bound by any statute (like the ESA). In the context of employment law, the term common law refers to the application of judicial precedent to the contract of employment.
In Ontario, the ESA and the common law are two overlapping sets of rules that govern the relationship between an employer and an employee. It is important to differentiate between the two because they may prescribe two different sets of rules. This is perhaps most pronounced with respect to the length of notice periods an employee is entitled to receive upon termination.
What happens when I am fired? Termination with Notice
To demonstrate how the ESA and common law differ, it may be useful to speak further about one important issue in the context of employment law: termination.
In Ontario, when an employee is terminated by the employer, they are terminated with notice or without notice. An employer is only able to dismiss an employee without notice (i.e. immediately) if they give “just cause”. What this means is that in order to terminate an employee “on the spot” an employer must give a reason to justify the employee’s immediate dismissal. The reason has to be a good one. It often means that the employee has engaged in some misbehaviour that is so grave that it repudiates the employment contract. Precisely what constitutes just cause is a huge topic which I will not deal with here. Suffice it to say that it is a high standard to meet and is difficult to establish. Furthermore, it is an all or nothing proposition. You are either fired for just cause or not. In Canada, there is no such thing as “near cause”; there is no middle ground.
Given the difficulty that an employer may have in establishing “just cause”, he or she will (often on the advice of legal counsel) choose to terminate an employee with notice if, for example, the employee is just not the right “fit”. The length of the notice period could differ drastically depending on whether the ESA applies. In Ontario, the presumption is that the common law “reasonable notice” period will apply. The length of reasonable notice varies on a case by case basis but is often tied to the age of the employee, the length of their employment, their position with the company, and their salary. Another factor that could lengthen the notice period is how quickly an employee could find a similar job. The notice period mandated by the ESA is almost always less than the reasonable notice period imposed by a court. The difference can be substantial. For example, a 20 year employee at a small company may only be entitled to 8 weeks notice under the ESA, but could be entitled to 20 months of reasonable notice under the common law.
So how do you know which notice period applies? The question is did the contracting parties (i.e. the employer and the employee) intend to supplant the common law reasonable notice period with the minimum notice period prescribed by the ESA. There are many ways to determine the intention of the parties, but the first thing you should do is to examine the employment contract. If there is a termination provision in the contract it must clearly and unambiguously state that the notice period will be determined by the ESA and not the common law.
Even if it seems clear that the parties intended the provisions of the ESA to apply to termination, a court could very well find that not to be the case. If the termination clause is not properly drafted, it will not be enforceable. A common mistake is to draft a termination clause that, while it appears to be in line with the ESA, is a potential violation the ESA. For example, generally speaking the ESA prescribes one week of notice per year of service. So if an employee has worked for an employer for 3 years but less than 4 years, they will be entitled to 3 weeks of notice. Let’s say the employee was dismissed after serving for 3.5 years. Their termination clause states that they are entitled to a flat five weeks of notice. And the employer gives the employee five weeks of notice. Has the employer provided the employee with proper notice?
Likely not. While the employer provided more than the employee was entitled to under the ESA (the employee was entitled to 3 weeks but received 5 weeks), the termination clause is likely not enforceable. The problem is that it potentially violates the ESA. By prescribing a flat five weeks, the clause potentially violates the ESA because the employee would have been entitled to more time had she served for 6 years or more. It does not matter whether she did or not. It is likely that the court would find the clause to be unenforceable and the common law reasonable notice period would apply. So, the employer, who likely thought that they were following the law by providing more than the ESA required, would now be forced to pay reasonable notice, which, for a 3.5 year employee, could be in the range of 2-5 months notice.
This is why it is very important for employers to have a lawyer examine their termination clauses. It could be that their clause violates the ESA and needs to be amended. Conversely, employees should know what they are getting themselves into. A termination clause, if properly drafted, rescinds their right to reasonable notice under the common law.