The Alpha and Omega of the Employment RelationshipThe Alpha and Omega – the beginning and the end – of the employment relationship involves everything from an employer’s first

McCarthy Tétrault LLP

September 26, 2006

Canadian Council of Christian Charities

The Alpha and Omega of the Employment Relationship

Earl Phillips


INTRODUCTION

The Alpha and Omega – the beginning and the end – of the employment relationship involves everything from an employer’s first thought of hiring a new employee through the period after termination. Every step has significance to each employment relationship and to the employer’s workforce generally.

We will concentrate on proper hiring and proper firing, but with some discussion of what happens in between.

We start from the assumption that every charity employer wants to have a committed and efficient workforce who feel that the charity’s values are evident in how it treats its employees.

RECRUITING

Even before an employee accepts employment, a special relationship exists between the charity and the potential recruit. Too often, employers do not invest significant time and effort in the hiring process. A careful and informed approach to the hiring process can significantly reduce the likelihood of problems arising over the course of the employment relationship.

Understanding the Job

It is only when you are sure you know what you need that you can even start trying to find the right candidate. Carefully outline the needs you need to meet and the qualifications you require. Take the opportunity to review and refresh the old job descriptions. Think about new ways to meet old needs. Consider whether existing employees need new challenges.

Understanding the Candidate

Stand on and Communicate Values

Every part of the recruiting process should be driven by the employer’s values: - know them, talk about them regularly, live them. Make them a featured part of every interaction with a candidate so that you can gauge their reaction and their “fit”.


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Behaviourally Based Questions

Work to understand how the candidate will behave in different circumstances and environments. Some examples:

Tell me about your most challenging professional learning experience. How do you account for its success or failure? What did you take away from the experience and what (if anything) would you do differently next time?

Tell me about a time when things were not going too well on a team that you were on. What factors in your opinion contributed to those circumstances? What if anything, were you able to do to help improve the situation?

Tell me about a time when you exceeded your manager's expectations. What were the circumstances? What motivated you to exceed those expectations?

Describe for me your greatest professional or personal achievement. Why is it significant for you and how did it help others?

Multiple Interviews and Reference Checks

Multiple interviews help to ensure that you are finding the right candidate and not missing indicators of a “mis-fit”.

Try to follow up with at least two people who worked directly with the candidate in the past.

Privacy Issues

Some of the provinces (BC, Alberta, Québec) have personal information protection legislation that applies to private sector employers. This legislation imposes obligations on employers regarding the collection, use, disclosure and retention of personal information. Even if your charity is not subject to such legislation, there is a growing privacy culture in Canada and many employment candidates will expect employers to take special care with their personal information. For that reason, all employers are well advised to take the developing privacy laws into account in all their employment practices, including reference checking.

Under privacy law, the prospective employer must notify the individual that it will be collecting, using and disclosing the personal information and identify the purposes for which the personal information will be collected, used and disclosed.

The Office of the Information and Privacy Commissioner for British Columbia has published “PIPA and the Hiring Process” which includes “Frequently Asked Questions” (“FAQ”). On the subject of references, the FAQ suggests:


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at a minimum, a prospective employer is required to notify the applicant that it intends to contact previous employers or conduct background checks;

an employer is required to tell the applicant the purpose for which the information will be collected, used and, if relevant, disclosed;

the prospective employer must ensure that the information is “reasonably required” for the establishment of the employment relationship; and

an employer may assume that an applicant who has listed a reference in a job application or resume has implicitly consented to a prospective employer collecting personal information from the referee which is reasonably related to the job requirements.

As a further precaution, when notifying the applicant of its intention to collect and use personal information in its reference process, a prospective employer may wish to obtain written consent or include a procedure to note consent in its own records.

[For more on privacy law in employment, see my article “Employers and the Privacy Culture” at http://www.mccarthy.ca/search/pub_search_results.asp.]

Asking, and Being Asked, the Tough Questions

Get to the tough questions sooner rather than later. It is in both the employer’s and the candidate’s best interests to understand each other as soon as possible and it is an important way to communicate the values we have talked about.

The tough questions will vary depending on the candidate, but may be something like:

Why did you leave your last job?

How do you think the people at _____________ would describe you as a workmate/colleague?

If I were to check your references today, in addition to all the great things I would hear about you, what are some areas for improvement that I would hear about (because if we continue to pursue you as a candidate, I will ask)?

If I were to give you $1500 today and told you that you had to spend it on soft skills improvements, what courses would you spend the money on? (This question is meant to give us a sense of their level of self awareness.)

Once the question is asked, don’t forget to listen very carefully to the answer. Then, follow up on any part of the answer that you don’t understand or which leaves you with any doubt about whether the response is a positive or negative with respect to their future as one of your employees.


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Create a safe environment for the candidate to ask you some tough questions. It will be another opportunity to express the organization’s values.

Making the Decision

How the final decision is made will depend very much on the nature, structure and culture of each employer. But there should be a few common elements:

gathering and sharing information from interviews and reference checks;

comparing the candidates to the job requirements;

comparing the candidates with one another; and

those who are responsible taking ownership of the decision.

If anyone in the process has doubts about the candidate, think very carefully before deciding to hire. As difficult as recruiting is becoming, it is still more difficult to deal with a bad hiring decision.

Don’t Over-sell the Job

If an employment relationship is entered into based on false promises and misrepresentations, it is likely to end unhappily and with significant legal exposure for an employer.

An employer is under a duty of care during the pre-employment phase to exercise reasonable care and diligence in making representations regarding the employment opportunity. A particular problem is any suggestion of job security or tenure. Prudent employers will not make over-reaching promises. If there are aspects of the employment position being offered which the employer is not certain about or which are subject to change or approval, the employer should be candid with the job applicant about such circumstances.

Enticement

Employers who aggressively recruit an employee from another employer may face added liabilities if they dismiss that employee without cause in the future. Individuals who are enticed away from one job to another may be sacrificing the security of their existing employment, as well as benefits and opportunity for advancement. If the employee is then terminated without cause in the future, the court may consider the enticement as a factor in determining the notice period required, typically by adding the length of service in the former employment to length of service in the new employment.


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APPLICATIONS AND INTERVIEWS

Questions You CAN’T Ask

Every province in Canada has human rights legislation that prohibits discrimination in employment on certain grounds. The legislation affects everything from advertising for employees, through job applications and hiring decisions, to termination. The prohibited grounds of discrimination differ in specifics from province to province, but, subject to the BFOR exception discussed below, you should not ask any question that might generate information about a prohibited ground. For example:

Do you have any disabilities?

What is your age?

What is your nationality?

Are you married?

Are you pregnant? If not, do you intend to have children in the near future?

What is your religion?

What is your social insurance number? (This may contain information about a person’s citizenship status)

Which primary and secondary schools did you attend and when? (This could illicit identification of religious observance)

Do have any memberships in clubs or other organizations?

Privacy Issues

In addition to the human rights law constraints on gathering information from a prospective employee, privacy law may impose further constraints.

The most important general obligation of privacy law is to only collect, use or disclose personal information when it is reasonably necessary to do so. In the job application process, that means that an employer should only ask questions where there is a justifiable need to have the information for the purpose of making a hiring decision.

Questions You CAN Ask

The following is a list of questions that can be asked:

Name, Address and Telephone Number

Are you legally able to work in Canada?


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Employment History. (It is permissible to ask for full details)

Are you able to perform the following duties [Insert duties]? If not, what is the nature of any accommodations you require?

Do you have any memberships in an organization which do not reveal your gender, race, religion, ancestry or place of origin?

Are you available for shift work? If not, what accommodations would you require?

In addition, you can ask questions that relate to a bona fide occupational requirement (“BFOR”) of the job. For example, if the job involves driving, you can ask if the applicant is licensed to drive the required vehicle.

Faith Requirements

One of the most important BFOR issues for Christian Charities is whether the candidate must share a particular faith commitment to be qualified for the job in question.

If the employer can establish:

the need for the employee to share a particular faith commitment in order to properly fulfill the job requirements, and

a clear and objective understanding of what that faith commitment is,

it may be possible to justify the requirement as a BFOR and disqualify any candidate who does not meet that requirement. [The legal test for a BFOR is outlined below.]

How will this apply in practice? It will vary. But we can say that the Executive Director of a Christian charity can usually be held to a particular faith commitment, while it is less clear for the receptionist, and it may be doubtful for the janitor.

Much will depend on:

the nature of the charity and how important the faith commitment is to its work;

the employee’s position and job description;

the values and methods of work of the charity; and

the way in which all employees are integrated into the mission of the charity.

The next hurdle is to have a clear understanding of what the faith commitment is. Is it to be a “Christian”, a “practising Christian”, a member of a particular denomination or of a particular church? The less specific, the more open the requirement will be to a challenge.


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If the BFOR hurdle cannot be cleared, many provinces have a special provision in its human rights legislation that allows charitable organizations to give a preference in hiring to persons who meet characteristics important to that charity.

HIRING – THE EMPLOYMENT CONTRACT

Every employee has an employment contract. It is typically a mixture of written, oral and implied terms. The employer’s goal should be to have as much of the contract in clear, written form as possible. To do that requires some discipline and systems at the point of hiring.

Controlling the Offer

Every contract is made up of an offer, acceptance and consideration. In an employment situation, this can be as simple as the employer verbally offering a particular job for which it will pay a certain salary, and the employee accepting that offer. The contract is then formed and it will be very difficult to rely on any terms or conditions that were not explicitly made part of the offer.

No offer of employment should be made until all important terms of the offer are made in writing. And the employee should be required to sign the offer to show acceptance prior to starting work.

Criminal Records Checks

Many employers wish to do a criminal records check before hiring a person. In British Columbia, some charities are required to do a check.

Pursuant to the Criminal Records Review Act (British Columbia), section 8(1) an employer must:

[E]nsure that every individual who is hired for employment involving work with children and every employee who works with children undergoes a criminal record check.

“Employer” is broadly defined in section 1 of the Act such that any agency with some governmental connection, either legislatively or through funding, may be captured.

The Act also requires that:

an employer must inform potential employees of the criminal record check requirement and make an offer of employment before requiring the check;

an employer cannot employ an individual to work with children, until the person has provided a criminal record check authorization; and

if the employee is hired by the employer, the employee cannot work with children until the employer has a criminal record check authorization.


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Charities responsible for the well-being of children or vulnerable persons may require criminal record checks for its employees and volunteers, even if not required to do so. Under section 6.3(3) of the Criminal Records Act (Canada) such an employer may, with the employee or volunteer’s permission, verify whether the employee or volunteer has been convicted of a sexual offence for which a pardon has been granted or issued. The charity can then consider the results of the check in making its decision to hire or retain the employee or allow the volunteer to work with the charity, subject to the requirement not to discriminate on the basis of a criminal conviction unrelated to the employment.

If a criminal records check is required by statute or charity policy, it should be an explicit condition of every offer of employment that a satisfactory criminal records check is completed.

Completing the Contract

To properly complete the contract, there should be an approval process to ensure both senior management and administrative staff have completed all they need to do to make and carry out a decision to hire. For example:

Instead of concluding an interview by saying: “We’d like you to join us and you can start on Monday”,

the message should be:

“We are going to make you an offer of employment. We will send a package of material to you for your review. We look forward to the possibility of working with you.”

All the important terms of the offer, and the places where they are found (such as in separate agreements or employment manuals), must be identified. Create a checklist of the required elements and documents that comprise a proper employment offer.

This need not be burdensome or time consuming and the candidate will be much more impressed with a well-presented and comprehensive offer of employment.

A Word About “Contractors”

Many employers think there is particular magic in having a person who works “on contract” or who is a “contractor” not an employee. It is assumed that the normal employer obligations do not apply. In particular, it is thought that the person can be paid without deductions and without the employer contributing to CPP and EI, or that the person can be terminated with little or no cost.

In most cases, such “contract” or “contractor” relationships are an illusion and can lead the employer into greater, not less, liability than if a proper employment contract was completed.

If you are asked to enter into such an arrangement, you must be satisfied that the person is truly an independent contractor, not an employee, and that the particular “contract” benefits to be enjoyed by the employer are clear, legal and enforceable.


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THE EMPLOYMENT TERMS

The common law (and to some extent the Québec Civil Code) implies certain terms into every employment contract, even if the employer and employee have never discussed them. In addition, there are various statutory obligations imposed on employers. The most important of these implied and statutory obligations are set out below.

Implied Employee Obligations

Every employee is required by law to:

provide service to the employer;

serve the employer with loyalty and good faith;

protect confidential information; and

give the employer the benefit of the employee’s inventions and ideas related to the employment.

Implied Employer Obligations

Every employer is required by law to:

provide work for the employee;

provide compensation;

meet minimum standards of employment legislation;

comply with human rights law, including the duty to accommodate; and

provide a safe workplace.

Desirable Terms

There is no single form of written employment agreement that will cover all situations – written employment agreements must be drafted to cover the specific concerns of the parties involved. It is not necessary to have a comprehensive employment agreement – many situations are adequately covered by a one or two page summary of the key terms. What is essential is that the terms that are key to the needs and operations of the charity be explicitly stated and agreed to.

This is not an exhaustive list of the provisions that might be in an employment agreement, but these are the major points that can be considered:

Parties

Identify the parties using the correct legal name of the charity.


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Nothing should be said, done or written to suggest that any officer or director of the charity is assuming a personal obligation to the employee.

Term

For what period is the agreement?

Is the agreement subject to funding being available?

Is there a probation period and, if so, what are the rights and obligations of the parties if probation is not successfully completed?

Is the agreement for a definite or indefinite term?

Can the agreement be renewed and, if so, how and on what terms?

If for a definite term, is there automatic renewal or termination in absence of notice?

Pre-Conditions

State explicitly any conditions that must be met before employment begins, such as:

a satisfactory criminal records check;

a certificate of fitness for the duties of the position;

completion of a course of study; and

funding.

Duties

Set out at least a general statement of duties. For example:

The Teacher agrees to carry out to the best of his/her ability such course assignments and extra-curricular assignments as are made at the discretion of the Headmaster in accordance with the policies set out in the Teacher Handbook.

This statement can be as general or specific as the parties feel is necessary.

It is always wise to state who will provide directions to the employee.

Sometimes the parties will prefer a more specific statement. The employer may want to make sure that express lines of authority are established. On the other hand, the employee may want to ensure that the employee will not be subject to carrying out tasks considered to be beneath the employee’s dignity or qualifications.


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There is a risk with being too specific. The employer needs flexibility so that it can adapt its operations to meet changing conditions. If the duties are too specifically described, and the employer makes a unilateral change to these duties, the employee may be able to claim constructive dismissal. Constructive dismissal is discussed in greater detail below under “Termination”.

As with many of the terms of the contract, there will be the need to find a proper balance between certainty and flexibility.

Compensation

Again, the provisions on compensation can be general or specific.

What are the forms of compensation?

Amount of salary?

Frequency of payments?

Is there a procedure/formula for increases?

Are hours of work defined? Will the employee receive overtime?

Are there funding requirements which will affect compensation?

Benefits

Given the complexity of most group benefit plans, it is usually sufficient to set out in the contract:

the employee’s entitlement to participate in the group benefit plan;

the waiting period, if any;

the amount of any employee contribution to premiums; and

the entitlement of the employer to amend the plan with respect to eligibility criteria, coverage, coverage maximums, deductibles and employee premium contributions;

and include a copy of the benefit booklet with the offer letter.

It is not recommended that the employer attempt to paraphrase the terms of the group benefit plan in the offer letter, as it is possible that if the terms are not correctly represented, the employee will be entitled to the greater benefit outlined in the offer letter.

Consider whether a provision needs to be inserted to provide for amendments to benefits from time to time (particularly where specific benefits are negotiated for senior employees).


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Vacation

What is the vacation entitlement?

Can an employee carry over unused vacation into future years (subject to Employment Standards legislation)?

Are there restrictions on when the vacation can be taken?

Intellectual Property

Are there are any specific types of information which should be included in the standard non-disclosure covenant?

An ownership of inventions or copyright provision may be important in certain positions or environments. The two key issues are which employees will be required to sign such provisions, and the scope of the work product covered.

Non-Solicitation Covenant

A non-solicitation provision prohibits a former employee from soliciting the donors, suppliers, customers or employees of the former employer.

The following issues should be considered in preparing a non-solicitation provision:

To whom does it apply: customers, clients, suppliers, employees?

How are each of these groups to be identified or defined? It is important that the members of the group can be readily identified.

Termination

The method by which employment can be terminated is often the most important aspect of the contract and the most poorly defined. [See the discussion on termination below.]

Termination may occur for just cause or without cause.

For all types of terminations, including resignation or expiry of the term, include a requirement that the employee will return to the employer all property, records, keys, etc. belonging to the employer.

Termination for Just Cause

Pursuant to the common law, an employee can be terminated for just cause without notice or pay in lieu of notice.

The common law has developed a body of case law which defines what constitutes “just cause” (see below). The employer may rely on the common law notion of just cause but many charities


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will want to add particular items critical to its mission. For example, a child care agency may want to emphasise and enforce a prohibition against corporal punishment, or a religious charity may wish to enforce a bona fide occupational requirement like adherence to a statement of faith, by sanctioning a breach with termination from employment.

Termination Without Cause

Pursuant to the common law, an employer can terminate an employee without cause if the employer provides reasonable notice or compensation in lieu of notice.

Because the determination of common law reasonable notice is uncertain, it is preferable to specify exactly how a contract can be terminated when no cause exists.

In many cases, employers will terminate without cause under the contract rather than trying to prove just cause on the grounds of poor work performance.

The provision should set out how much notice or compensation in lieu of notice is required to terminate the contract without cause. It is best to include a provision indicating that the employer can give notice or compensation in lieu of notice, or any combination of the two.

Careful wording is required, but an employer and employee can reach a binding agreement in advance regarding the length of notice or compensation required to terminate without cause.

For such an agreement to be valid and enforced by the courts, it must not violate the minimum standards of the Employment Standards legislation. There must also be no evidence that the employee did not fully understand the effect of the term, or that he was pressured, however subtly, to agree to such a term.

Employer Policies

If the charity has policies or rules which will apply to the employment relationship, they should be referred to in the contract, a copy provided to the employee, and a provision included by which the employer is entitled to amend them.

Resolution of Disputes

Employers may wish to stipulate the manner in which disputes will be resolved during or after employment. These provisions include granting exclusive jurisdiction to the courts of a particular jurisdiction, stipulating the law which applies, requiring arbitration and stipulating the terms under which it will occur, or requiring mediation.

There can be advantages to arbitration or mediation in the charities sector. It can lead to effective dispute resolution by a person who understands the parties’ values, and it may be faster and less costly than going to court.


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Special Terms

Funding Uncertainty

For some charities, employment issues are complicated by the fact that the organization has little control over its funding. Funding may be intermittent, provided in block, or by way of specific funding for particular programs. Because cancellation or reduction of funding is not “cause” for termination of employment, an employee who loses his or her employment is entitled to notice or compensation in lieu of notice in accordance with both statute and the contract or common law. The organization may not have sufficient funds to give such notice or compensation in lieu.

The impact of funding uncertainty may be reduced by the use of fixed term contracts. If a program is funded from April 1st to August 30th, then program staff are hired for that term. Employment then ends without notice at the end of the term. Because many funding agreements have 30 day termination provisions, an appropriate mid-contract termination clause should also be included. In each case, the requirements of the Employment Standards legislation must be followed.

An organization might choose to offer employees fixed term contracts based on the fiscal year. Funding, programming and staffing options are reviewed in the budgeting process, then employment contracts are offered.

While the courts will enforce fixed term contracts and contractual termination provisions, they will carefully scrutinize the contracts and the circumstances of employment. Administration of contracts can be difficult, particularly where an employee is offered a series of contracts. It is important that the offering of contracts does not become an “automatic” procedure. An operational review should be conducted and a considered decision made before each contract is offered. Contracts must be signed before the employee commences work and an employee must never work beyond the term of the contract. Each time a contract is offered, the employer must ensure the requirements of the Employment Standards legislation are met and the fixed term and termination provisions should be drawn to the employee’s attention. The form of contract should be drafted or reviewed by legal counsel.

Organizations considering implementing fixed term contracts for existing employees will also need legal advice as to proper notice and consideration to be paid to each employee. Moving to fixed term contract employment will likely be a change in the terms and conditions of employment, which requires either notice or agreement, supported by consideration, of the employee.

Faith and Conduct

Many Christian charities want to require of their employees a certain faith commitment and the maintenance of certain standards of conduct in their personal lives. For such standards to be enforceable, they must qualify as a bona fide occupational requirement (“BFOR”). To qualify as a BFOR, the charity will have to show:


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it adopted the standard for a purpose or goal that is rationally connected to the function being performed;

it adopted the standard in good faith, in the belief that it is necessary for the fulfillment of the purpose or goal; and

the standard is reasonably necessary to accomplish its purpose or goal, in the sense that the employer cannot accommodate persons who do not meet the standard without incurring undue hardship.

DURING THE TERM OF EMPLOYMENT

The Positive Workplace

Here are a few general thoughts on developing a positive workplace and building a sense of community which can help retain your best employees and make any eventual termination easier to handle.

Manage and Train to Manage

Do not abdicate the responsibility (which is owed to the employer and to the employees for whom you are responsible) to make the hard decisions. Be clear and consistent about your expectations and enforce them.

Your front line managers have the closest contact with employees and have the greatest influence on employee perception of the employer and its leadership. They communicate for and represent the employer, for good or ill.

Senior leadership must be consistent with front line managers. If the management team does not see and hear a consistent message from the top, they will never be sure if they are properly representing you. They may even assume you actually mean the opposite of what you say.

Communication must be two way. You need to listen and process the responses from front line managers. Do they really understand? Do they really believe? Are they really committed to the corporate goals and objectives?

Enlist and Inspire

“Enlist” is a useful word in today’s competitive market for talent. As Max DePree (former CEO of the Herman Miller Company and author of Leadership Jazz and Leadership is an Art) said, we need to treat all employees like volunteers. We need to enlist them to the cause and continually win their commitment.

“Inspire” is an intimidating word. But the ability to inspire is not restricted to a Churchillian ability to lead a nation in the face of impossible odds. Inspiration is possible when you know


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yourself and your people and understand your style of leadership. Whatever that style, if it is filled with substance and sufficiently adaptable to reach different types, you can inspire.

Prepare for Change

One of your key tasks is to identify the approaching challenges and the possible responses. If you can prevent your team from being surprised by a new problem, you will have a team that is more ready to make the necessary changes.

Be Transparent

This is ultimately a matter of trust. To be transparent is easier said than done. But if you are not able to speak honestly and openly with your team about the issues before them, you will be tearing down trust, rather than building it up. Your team members need to know that they are getting the whole truth from you; without that, your ability to manage, enlist and inspire, and prepare for change is undermined.

Community

A legal definition of “community”:

Mixture or identity of interest in a venture wherein each and all are reciprocally concerned and from which each and all derive benefit and sustain a mutual responsibility.

Take away the legal obscurity, and this definition highlights some key issues for “community”. It also suggests that whatever the culture or tradition that is the foundation for your charity, the concept of community may be useful.

Why talk about community? Because everyone wants to feel as if they belong. Even if an employee, or maybe especially if an employee, enjoys a sense of belonging in other contexts, they will want a similar experience in their work. Employers are given the essential raw material for community: a common interest. Much of what we have talked about goes to the issue of what you do with that raw material, how you develop the “reciprocal concern”, ensure that all “derive benefit”, and maintain “mutual responsibility”.

How to lead community? The challenge is to act on the understanding that you cannot “lead” by creating community. You can only foster the growth of community and develop the “mutual responsibility” to sustain and nurture it.

The 10% Problem

Most employers of any size will agree that 10% of their employees should probably be doing something else. Some of those 10% are not competent or not as capable as someone you could hire to replace them. Some of them are over qualified (a particular problem for Christian charities) and may be bored or unmotivated. Some of them need to move on to greater challenges.


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In almost all cases, the 10% will create problems. The goal must be to not have more than 10% and to not let the 10% govern the rest.

Reviewing and Changing Behaviour

Some of the 10% problem can be addressed by thoughtful and constructive performance reviews and efforts to change behaviour. There are both positive and defensive reasons to make the effort.

Dealing with poor performance constructively is consistent with the goal of providing satisfying employment to your employees and is consistent with values such as transparency, caring, trust and personal growth.

It can also help reduce an employer’s potential liability. If the employer wishes to terminate for poor performance without providing any notice or compensation, it will have to show clearly communicated shortcomings in performance, opportunity and assistance to correct those shortcomings, and clear warnings of the consequences of continued failure. Even if termination for just cause is not the goal or outcome, constructive performance reviews can help an employee make his or her own decision to seek employment elsewhere.

While these are the benefits, they should not be the goal. Rather, the goal of the process should be to determine if the performance problem is fixable and, if so, to establish a course of action to fix it. If it is not fixable, both employer and employee need to seriously review whether there is a future for the employment relationship.

TERMINATING EMPLOYMENT

An individual’s employment relationship is one of the most important relationships in that person’s life. Throughout Canada, courts of all levels are recognizing the importance of the employment relationship from a social perspective, not simply a contractual one. In particular, the Supreme Court of Canada in the last 15 years has rendered significant decisions in the employment law area which recognize the importance of the employment relationship.

With the increased recognition of the social and economic importance of the employment relationship, it is essential as employers to ensure that the most difficult aspect of the employment relationship, termination, is handled in the appropriate manner. Keep in mind the words of Mr. Justice Iacobocci from Wallace v. United Grain Growers Ltd :

The point at which the employment relationship ruptures is the time when the employee is most vulnerable and hence, most in need of protection. In recognition of this need, the law ought to encourage conduct that minimizes the damage and dislocation (both economic and personal) that result from dismissal.


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Notice

The first issue to consider when making the decision to dismiss an employee is how much working notice or compensation in lieu of notice is required. Three factors may govern the amount of notice: (1) the written employment terms; (2) statute law; and (3) the common law.

Written Employment Terms

If written employment terms regarding termination exist, they must be followed when an employee is terminated. If, for example, they provide that termination without cause can be effected by giving three months notice by March 31 of any year, that must be followed. If notice is given on April 1, the employer will be in breach of the contract.

Statute

Employment Standards legislation in each province stipulates the minimum amounts of notice and severance to be given and paid to employees on termination without cause. Employers must meet these minimum standards as to amount and timing of the notice and payments required.

Most provinces also have special provisions for group terminations. For example, in British Columbia special provisions apply if 50 or more employees at a single location are to be terminated within any two month period.

Common Law

The amount required by the legislation is only a minimum. In the absence of an employment contract stating otherwise, the employee whose employment is terminated without just cause is entitled to reasonable notice pursuant to the common law.

Termination For Just Cause

The common law has determined that an employee who is dismissed for just cause is not entitled to any notice. What amounts to just cause is strictly construed by the courts. Generally speaking, only the most serious misconduct such as theft or rank insubordination will justify immediate dismissal. In any event, the employer will be put to the strict proof of its allegation of just cause.

Other matters which, if proved, may be considered just cause for dismissal include dishonesty, disobedience, insolence, absenteeism, breach of trust, conflict of interest, or incompetence.

It should be noted that lack of work, lack of funding or a general slowdown in activity are not just cause for dismissal.


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Termination Without Cause

In non-union employment, an employer can dismiss an employee for any reason, subject to the prohibited grounds of discrimination under human rights legislation. However, if an employer dismisses an employee without cause, the common law has determined that the employee is entitled to reasonable notice. Failure to provide sufficient notice or compensation in lieu of notice may lead to a wrongful dismissal claim by the employee.

Compensation in lieu of notice is not limited to base salary. Compensation may also include expected commissions, bonuses, salary increases and increased benefits during the term of reasonable notice and the value of benefits such as car allowance, medical and dental plans and insurance and pension plans.

What Constitutes Reasonable Notice?

In determining what constitutes reasonable notice of termination, the courts have generally applied the principles articulated in the Bardal v. Globe & Mail Ltd. case from 1960:

There can be no catalogue laid down as to what is reasonable notice in particular classes of cases. The reasonableness of the notice must be decided with reference to each particular case, having regard to the character of the employment, the length of service of the servant, the age of the servant and the availability of similar employment, having regard to the experience, training and qualifications of the servant.

These factors are not exhaustive. The courts have considered other factors, for example, whether the employee was induced to leave previous secure employment. In those circumstances, the amount of notice to which the employee is entitled will be increased.

Wallace Damages

Another factor which may increase the length of notice to which an employee is entitled is the manner of termination. In October of 1997, the Supreme Court of Canada issued a decision called Wallace v. United Grain Growers Ltd. which decided that an employee can receive an increase in the length of notice if the manner of dismissal affects future prospects for employment or if the employee incurs humiliation, embarrassment and damage to self-worth and self-esteem, even if future prospects for employment are not affected:

… the loss of one’s job is always a traumatic event. However, when termination is accompanied by acts of bad faith in the manner of discharge, the results can be especially devastating. In my opinion, to ensure that employees receive adequate protection, employers ought to be held to an obligation of good faith and fair


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dealing in the manner of dismissal, the breach of which will be compensated for by adding to the length of the notice period.

… at a minimum, I believe that in the course of dismissal employers ought to be candid, reasonable, honest and forthright with their employees and should refrain from engaging in conduct that is unfair or is in bad faith by being, for example, untruthful, misleading or unduly insensitive.

As a result of this decision, it is vital that employers terminate employees in a careful and considerate way.

The following examples of employer conduct can be a breach of the obligation of good faith and fair dealing and should be avoided:

making unfounded allegations of cause or other misconduct;

making threats or attempting to intimidate an employee;

making false promises concerning an employee’s job security when the employee is vulnerable (for instance when the employee is on a leave due to illness or disability;

terminating an employee during or on return from sickness or disability leave;

harassing an employee who is on sick leave;

withholding payment of wages or severance, or failure to provide a Record of Employment;

failing to provide a promised reference;

making statements about the employee in public or in the employee’s church community; and

discrediting the employee to others.

Mitigation

Upon dismissal the employee has a duty to mitigate his loss by seeking new employment. The damage award will be reduced to the extent that new employment income is earned during the period of reasonable notice or if the necessary steps to mitigate are not taken.

Benefits During the Notice Period

In calculating compensation in lieu of notice, it is important to remember that the basic principle of damages is to put the employee in the same position as if the employee worked through the period of notice. The loss of benefits which would have been


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provided during that period can create large liabilities for the employer if handled incorrectly.

If the employee is not able to or does not replace some of these benefits, the employer may be liable not just for the cost of purchasing the benefit but for the loss of the benefit itself. This is potentially the most costly area to be considered.

Benefits such as long-term disability or life insurance can lead to great exposure. In some cases, benefits can be replaced but are either too expensive or an employee is unwilling to do so. In some cases, the employee may not be able to replace the benefit due to poor health or because the benefit is not available outside a group plan.

If the employee is disabled or dies during the notice period, the employer may be found liable, not for the lost premiums, but for the actual benefit. In the worst case, an employer may have to provide the equivalent of disability benefits until the coverage would have run out, usually when the employee attains age 65.

Therefore, it is wise to continue for the notice period, to the greatest extent possible, the employee’s benefits, particularly those that create large liabilities such as life insurance, extended health, dental and long-term disability.

It is also important to advise the employee in writing which benefits have ceased and give sufficient warning to the employee to obtain his or her own coverage. By doing this, the employer can at least argue that the employee had notice of the termination of the benefits and had an opportunity to mitigate losses by obtaining a replacement benefits plan.

Constructive Dismissal

A dismissal might take place without actually using the words “you’re fired”. Unilateral changes to a fundamental term of the employment contract can amount to constructive dismissal, which gives the employee the same rights, and subjects the employer to the same liabilities, as if an actual firing occurred. For example, a demotion, or a new position of entirely different character or of lesser status, or a change in compensation, can amount to a “constructive” dismissal.

Constructive dismissal can often be difficult to identify and the appropriate course of action for the employer may be difficult to determine. The employer should avoid making changes to the terms and conditions of employment before being satisfied that they will not amount to a constructive dismissal.

If a constructive dismissal occurs, the employer’s obligations are the same as if it had chosen to terminate the employee’s employment.

Reporting the Termination

A charity may have an obligation, under statute, pursuant to contract with government or other funding sources, or by reason of its relationship to another entity, to report the termination of


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certain employees. For example, when an independent school in British Columbia dismisses a teacher, it has a duty to report that dismissal and the reasons for it to either the College of Teachers or the Inspector under the Independent School Act. The independent school must also send a copy of the report to the person being dismissed.

If the teacher in question is a member of the College of Teachers or a person holding a certificate of qualification or letter of permission issued under the Teaching Profession Act, then pursuant to section 7 of the Independent School Act, the independent school must report, without delay, the dismissal and the reasons for it to the College of Teachers.

If the teacher in question is employed by an authority (as defined in the Independent School Act) to provide an educational program to students or to administer or supervise the provision of an educational program to students except a teacher who holds a certificate of qualification under the Teaching Profession Act, then pursuant to Independent School Act Inspectors Order Number 1/92, the independent school must report, without delay, the dismissal and the reasons for it to the Inspector.

The Severance Package

Working Notice / Salary Continuance / Lump Sum

The common law requirement is for actual notice of termination to be given – i.e. working notice. Working notice is relatively rare, but it should be considered if the charity is confident the employee will be able to work productively and happily knowing that their employment is coming to an end.

More common, is a termination with an offer of compensation in lieu of notice, and those offers usually take the form of salary continuance or lump sum payment.

Salary continuance typically involves an offer to continue regular salary payments to a certain date or to the date when the employee starts new employment, whichever comes first. It is also common to further provide for a lump sum payment of 50% of the balance if the employee starts new employment before the end of the salary continuance period.

These types of proposals can be mutually beneficial, providing the employee incentive to find alternate work and reducing the employer’s liability. However, it is clear that, in British Columbia at least, an employer cannot unilaterally impose a salary continuance severance package because of the recent Tull v. Norske decision.

Tax Treatment of Severance Packages

In making severance proposals, an understanding of the tax consequences to the employee can assist in structuring the proposals in a tax-friendly manner to the employee, provided it is tax neutral to the employer. Advising employees to consider their options (without actually giving them tax advice) and providing flexibility is a useful strategy to make severance packages more attractive to employees.


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A severance payment is normally treated as a “retiring allowance” under the Income Tax Act as it represents a payment to the employee in respect of the loss of office or employment. As a retiring allowance, only income tax is deducted. The employer is not required to deduct CPP or EI premiums. The income tax is deducted at a flat rate depending on the amount of the payment.

Prior to income tax being withheld, the employee is entitled to shelter portions of the retiring allowance from income tax by rollovers and contributions to the employee’s RRSP. If the employee has years of service prior to 1996, the employee is entitled to contribute at least $2,000 per year of service prior to 1996 directly into the employee’s RRSP, regardless of the contribution room available for the employee. In addition, an employee can contribute the retiring allowance directly to the employee’s RRSP up to the unused contribution room available in the RRSP. Amounts properly paid into an RRSP are not subject to tax withholding until the money is subsequently withdrawn from the RRSP.

Mitigation

It is often not well understood by employees that their entitlement to a severance package is subject to a duty to mitigate – to make every reasonable effort to find suitable alternative employment – and that the amount can be reduced by the amount of employment income earned during the reasonable notice period. This is a factor that can be used to offer a reduced lump sum severance.

Another mitigation issue which the employee needs to understand is the statutory obligation to repay employment insurance benefits the employee receives during the notice period. If an employee receives EI benefits before agreeing to a severance package, any EI benefits received by the employee during the notice period are deducted by the employer and remitted to Revenue Canada.

Structuring a severance package is most problematic when there is no written employment contract that specifically addresses what compensation an employee will be entitled to in the event the employee’s employment is terminated without cause. The extent that these issues can be defined in writing in an employment contract will go a long way to avoid the uncertainty and risk that is inherent with proposing severance packages in the absence of a written employment contract. It is also advisable in circumstances where there is no written employment contract to seek legal advice prior to making the severance proposal, to ensure it is fair and reasonable and that if accepted it will completely eliminate all claims, including claims related to benefit plans, employment standards, and human rights legislation.

Outplacement Counselling

As indicated under “mitigation”, the sooner the employee finds a new job, the better it is for the employer in terms of its liability. Therefore, the employer may want to consider the use of outplacement counselling which could help the employee find a new job sooner.


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There are also other important but less quantifiable benefits that can be realized. It is likely that a charity will benefit from establishing a reputation with current and prospective employees for dealing with terminations in a sensitive manner.

THE EXIT DOCUMENTS

The Termination Letter

In a without cause situation, an employer should provide a letter to the employee which sets out the proposed terms on which employment will end, and should include the following, if applicable:

confirmation of the last day of work;

confirmation of the last day of employment, if different;

confirmation of length of the statutory notice period and whether it will be satisfied by working notice, payment in lieu, or a combination, as well as confirmation of the date by which any payment will be made;

confirmation of the amount of accrued vacation pay and details of when and how it will be paid;

confirmation of the dates various benefits end and a suggestion for the employee to take steps to replace the benefits;

details of the right to convert group benefit coverage to an individual plan, the period in which such conversion must occur and who to contact for information;

the amount of any additional severance, whether a release must be signed, and details of how it will be paid (for example lump sum or salary continuance);

confirmation and consent regarding references that may be provided; and

the requirement to return charity property.

The employer should aim to provide a severance package which is as complete as possible in order to provide the employee with the information required to make a decision about accepting the package and moving on to alternate employment.

Release

If something more than the statutory or contract minimum is being offered to the employee, the employee should be asked to sign a release in exchange.

The release should be as simple and as brief as possible, and the employee should be given time to take it away, review it and get advice on it.


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Other Terms

Consider whether there are other specific terms that are necessary as the employment relationship is being terminated, such as confidentiality, proprietary rights or non-solicitation provisions.

To the extent there are such agreements in place which include post-employment obligations, they should be referred to and copies provided as part of the severance package documents.

Record of Employment

The Employment Insurance Act requires the employer to provide a terminated employee with a Record of Employment recording their final pay and severance pay. If there may be a period of time before the amount of the severance pay is finalized, it may be necessary to issue one Record at the time of termination and an amended Record when the agreement is finalized.

The Termination Meeting

The termination meeting is often very traumatic for both employee and employer. It can be especially difficult for a Christian charity, which often feels a special burden for the employee whose employment is being terminated.

At the risk of sounding cold hearted, it is important for the Christian charity to remember its role: it is an employer – not a counsellor or employment agency – and it is choosing to end the employment relationship. The charity needs to concentrate on being a good employer in the situation and let others act as counsellor and comforter.

The termination meeting should be planned to minimize disruption and embarrassment. Think carefully about:

when and where the meeting will take place;

how the employee will retrieve personal belongings;

whether the employee needs to leave the premises immediately; and

what steps need to be taken, if any, to change security access.

The termination meeting should be brief and to the point. There is nothing to be gained by delay in giving the termination message and, once it is given, most employees will have difficulty fully comprehending what is then said. At most, after delivering the termination message, the employer should briefly outline the severance proposal and suggest the employee take the time necessary to review and respond.

The termination meeting should be attended by two senior people in the charity. The employee needs to understand that it is a final decision of the charity, not a decision of a single person that can be appealed. It is also important to have two people who can corroborate what transpired at the meeting in case of any misunderstanding.


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The termination meeting should conclude with the employee being provided the termination documents and an opportunity to take them away and consider the employer’s severance proposal.

If outplacement counselling is being offered, it can be very helpful to have the counsellor on site and ready to speak to the employee immediately.

REFERENCES

Employers have long been concerned about giving references. There is a fear that speaking truthfully about a former employee’s shortcomings may lead to complaints by the former employee, while not passing on critical information about a former employee could lead to the new employer feeling deceived. In many parts of the charity sector, there is a sense of responsibility to ensure that poor, dishonest or badly behaving employees are not able to take their difficulties to another employer in the sector.

Some employers have decided not to provide references beyond confirmation of position and dates of employment, but the refusal to give more fulsome references may be seen as a negative by prospective employers to the detriment of even the best former employees.

Privacy law has added a further complication by requiring consent of the former employee before a reference can be given. While this is a complication in process, it may in fact provide part of the answer to other concerns, and it is recommended that all employers follow the requirements of those provinces with private sector privacy legislation:

A former employer who is asked for a reference is not entitled to disclose personal information without the individual’s consent.

Where a former employer is contacted to provide a reference, it should first confirm with the former employee that the individual consents to a reference being provided. A former employer should not assume that the individual has consented, simply because a prospective employer is seeking a reference.

Before giving a reference, the former employer should either contact the former employee directly or ask the prospective employer to have the applicant make direct contact.

Former employers may also wish to confirm the extent of the consent. An individual may indicate that the former employer is free to answer any question posed by the prospective employer or may restrict the former employer to providing as little information as dates of employment.

Consent to provide a reference may also be sought at the time the employment relationship is terminated. The issue can be raised in the termination letter and a form of consent included with the termination documents.


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Finally, it is important that the former employer control who will be giving the reference. Any request for a reference must be handled by someone familiar with the proper process and any agreement with the former employee about the content of the reference.

Earl Phillips McCarthy Tétrault LLP P.O. Box 10424, Pacific Centre Suite 1300, 777 Dunsmuir Street

Vancouver BC V7Y 1K2 604-643-7975

[email protected]

Documents

The Alpha and Omega of the Employment RelationshipThe Alpha and Omega – the beginning and the end – of the employment relationship involves everything from an employer’s first