Canada: Three Ways To Avoid Employment Disputes

Last Updated: September 10 2008
Article by Peter Eastwood

Most Read Contributor in Canada, September 2016


Employment disputes take many forms. When dealing with disgruntled employees (or, more typically, former employees), employers will often find themselves in front of courts, arbitrations, tribunals or regulatory bodies – and often several of these at once. Increasingly, employers are finding just how difficult it is to wage such legal battles on several fronts. Dealing with the media attention from a human rights complaint on one hand and an expensive wrongful dismissal action on the other can quickly deplete a company's resources and public goodwill.

Short of settlement, the most effective way to deal with employment disputes is to avoid them in the first place. Here are three things that every employer should know about current employment issues.

Be Aware of Statutory Responsibilities

For years, employment standards complaints were often considered the "kid brother" of more significant employment litigation. Many employers were content to continue with practices and policies that did not comply with legislated standards, in the belief that such complaints could be easily dealt with when they arose.

Those days are over. As the widely-reported overtime class action cases brought in the past year against CIBC, KPMG, Scotiabank and CNR demonstrate, the stakes for non-compliance with statutory obligations have been dramatically raised. In the CIBC case, the bank is being sued in Ontario for $600 million dollars relating to unpaid overtime under the Canada Labour Code.

These cases indicate that Canadian employment law is following the pattern of the U.S., where employment-related class actions have become increasingly popular. The rise of the class action has enormous ramifications for employers. Class actions dramatically level the playing field for employment litigation. By leveraging resources in this way, employees can pursue claims that would otherwise be uneconomical.

For example, a single employee is unlikely to pursue a $1,000 claim in court, given the legal fees involved (and few lawyers would agree to take on such a case, even on a contingency fee basis). However, if 100 people pursue the same claim, it is now worth $100,000 in total. One starts to appreciate how in the CIBC case the overtime claims of an estimated 10,000 employees can add up to a $600 million claim. There is also strength in numbers – employees are more likely to sue their current employer in a class action than individually. In fact, the statement of claim in the CIBC case pleads that the employees "risk losing their jobs if they pursue their individual claims."

Many employers do not comply with employment standards legislation, particularly its often-misunderstood requirements about overtime and vacation pay. The increased attention on these issues reflects a truth about modern workplace culture – people are working longer hours, in large part because of technology, which has blurred the boundaries of the workplace and home. Employers often attempt to address this issue through compensation and bonuses, rather than the payment of overtime. However, in doing so, they are not complying with employment standards legislation, which requires employers to keep detailed records of every hour worked by an employee, and to pay overtime (for all non-exempt employees) for all hours worked in excess of eight in one day or 40 in one week. Until recently, employers were often content to risk employment standards complaints – which, at the initial level, are not publicly-released decisions and which have a six-month "cap" on damages.

A number of large companies, including several major U.S. employers – Wal-mart, Starbucks, Taco Bell and Radio Shack – have reportedly been forced to pay enormous overtime settlements to employees. The publicity generated by these recent cases may result in more Canadian companies facing similar fates.

If there is one certainty raised by these class actions, it is the importance of ensuring that your company's policies and practices comply with all applicable employment legislation. The stakes are now too high to be complacent.

Use Employment Agreements Effectively

The ultimate preventative tactic for many employment liabilities is to resolve them at the outset, through an employment contract. However, many companies don't include in such contracts important terms, such as termination clauses and non-competition provisions. Worse, some don't use written employment agreements at all. Several developments have underscored the importance of clearly setting out what the parties' obligations and entitlements are on termination of employment.

First, awards of damages in lieu of reasonable notice of termination for shorter-term employees have crept upwards in recent years. In several cases, courts have awarded up to six months' notice to senior employees with only a few years' service. Therefore, it becomes even more important to address and "cap" that liability at the outset of employment. In recent years, courts have shown a willingness to enforce properly-drafted termination clauses, provided the terms are not manifestly unfair and the contracts were not entered into under duress.

Second, recent cases have demonstrated the difficulties faced by companies in suing former employees who have joined competitors. In one recent case, several key employees left a brokerage to join a competitor, and then began doing business with their previous clients using confidential information they had removed in the weeks leading up to their departure. In overturning the trial judge's decision, the Court of Appeal found that no obligation for an employee not to compete unfairly with a former employer after leaving employment exists outside an employment contract. This decision has been appealed to the Supreme Court of Canada. However, regardless of the outcome, the case emphasizes the importance of entering into non-competition agreements with key employees at the outset of employment.

As with any contractual provision, it is important to ensure that termination and non-competition clauses are clearly drafted, entered into freely and for consideration (i.e. the employee is getting something in return for agreeing to the restriction), and comply with employment standards legislation.

Treat Employees Fairly

Traditionally, employment cases have not seen significant damage awards. This has also changed dramatically in the past few years. Several Canadian courts have recently punished employers with unprecedented punitive damage awards for acting harshly towards employees. Increasingly, employees have a variety of forums in which to bring claims related to their treatment, including human rights tribunals, occupational health and safety regulators, and even the criminal courts.

The most startling development in the past few years was an Ontario decision that awarded a disabled employee a 24-month notice period and $500,000 in punitive damages. Although the Ontario Court of Appeal and Supreme Court of Canada subsequently overturned the punitive damage award and reduced the notice period to 15 months, the case served notice on employers that, in the right circumstances, "hardball" tactics may be severely punished. In that case, the courts determined that the employer did not have cause to terminate a chronically-absent employer after he refused to meet with a company doctor.

Other decisions have emphasized the importance of protecting employees from any threatening or abusive treatment. In a recent B.C. decision, a former RCMP officer was awarded $950,000 in damages as a result of repeated harassment from the commander of her detachment. Intimidation or coercion aimed at preventing an employee from bringing complaints or reporting unlawful conduct can expose an employer to claims under the Workers Compensation Act or Human Rights Code, and even criminal charges under the new "whistleblower" provisions of the Criminal Code. Employers should ensure that managers and supervisors are aware of their legal duties and responsibilities to maintain a safe, healthy and respectful workplace for all employees.

Final Thoughts

These examples showcase some of the ways in which problems in the employment relationship can be prevented. Many employers are discovering that it is increasingly important to deal actively with potential claims – to keep up to speed on regulatory requirements, such as obligations under employment standards and occupational health and safety legislation, and to be proactive about difficult issues such as employee layoffs and competing employees. By dealing with these issues head on, prudent companies are minimizing the amount of time, and number of tribunals, in which they deal with employment-related disputes.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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