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For more detailed information please contact us at (416) 593 5844 or by e-mail. In no circumstances will the general legal information provide below substitute for professional legal advice.

Employer Issues

  1. "Frustrated" Employment Contract (Injury and Illness)
      - What is a "frustrated" employment contract?
      - Two types of absenteeism (chronic, innocent)
      - Absence due to illness or injury
      - What acts and legislation might apply
      - Employer tips
      - Basic employer guidelines
      - Conclusions

  2. Independent Contractor or Employee
      - Why individuals want to be contractors
      - Importance of making the employee / contractor decision
      - How the law determines an employee's status, if disputed
      - What legislation is applicable

  3. Employment Contract Issues
      - General information
      - Avoiding & resolving problems
      - Issues to be considered
      - Circumstances not upheld by the court

  4. Poor Performing Employees
      - If intending to dismiss an employee
      - Legal standard
      - Handling poor performers
      - Performance improvement plans (PIPS)

  5. Employment Contract: Why You Want It In Writing!
      - Matters To Consider
      - When Problems Arise And How To Avoid Them

 

"Frustrated" Employment Contract

What is a "frustrated" employment contract?
  • A frustrated contract occurs when an employer is attempting to dismiss an employee who is no longer active at work due to illness or injury. This is a challenging task because the employer is governed by common law and legislative restrictions that may limit the employer's ability to act. "THE GOAL OF THE AUTHOR IS TO OUTLINE PREVENTATIVE STEPS THAT CAN BE TAKEN BY EMPLOYERS TO AVOID LEGAL LIABILITY WHEN DISMISSING "THE GHOSTS ON THE PAYROLL".

General Information: Two types of absenteeism
  • Chronic absenteeism - employee is incapable of sustaining regular attendance, whose absences are typically short-term and for a multiplicity of reasons.
  • Innocent absenteeism - can be long-term and can be caused by mental or physical illness. The illness or injury can occur at or away from the workplace.

Absence due to illness or injury has to continue for some time before the employment contract is frustrated. When attempting to dismiss an employee based on illness or injury, the Employment Standards Act rears its head and the employer has to determine whether statutory notice and severance pay are payable to the employee. Please note that even if it appears that there is no entitlement to payment of notice at common law, employment standards adjudicators have awarded payment pursuant to the statute. The employer must also consider human rights and worker protection legislation prohibiting discrimination on the basis of a handicap, in some circumstances there are legislation accommodation of illness or injury.

What Acts and Legislation Might Apply?

  • Common Law - Is there a reasonable expectation of the employee returning to work in the reasonable foreseeable future?
The leading case of Marshall v. Harland & Wolff Ltd. sets out the following factors to be considered when grappling with the issue of whether an employment contract has been frustrated:
  • the terms of the contract, including the provisions as to sickness pay;
  • how long the employment was likely to last in the absence of sickness;
  • the nature of the employment;
  • The nature of the illness or injury and how long it has already continued and the prospects of recovery; and the record of past employment.

Other factors that may influence the decision include the demands of the business, the nature of the position given, the problems of filling the position on a temporary basis, and the length of an employee's service.

  • The Legislation - The common law of frustration applied to cases of innocent absenteeism and the obligations of an employer cannot be considered in a vacuum. Provisions contained in provincial legislation modifying the common law will be considered in the following section of this paper. The Worker's Safety and Insurance Act (WSIB), Human Rights Code and Employment Standard Act not only set out their won protection for injured or disabled employees but also incorporate protection provided by one statute into another.


Employer Tips on Dealing with Absenteeism Due to Illness or Disability

The employer should be clear and direct with an employee, who may be ultimately dismissed due to illness or disability, about the information you have and the consequences to them. The employee must clearly understand what they are facing, and what is expected of them to have any chance of successfully returning to work. If that is not possible, then they must understand that there will then be an opportunity for the termination of their employment.

Some Basic Guidelines to the Employer:
  1. Collect, analyze and continually update medical reports in personal files;
  2. Ensure straightforward and regular notification to the employee for further or the more detailed medical evidence;
  3. Provide the employee with a time deadline by which any new or different medical information must be submitted;
  4. Caution the employee in writing that employment may be in jeopardy if there is no reason to believe that the employee can either return to work, or bring attendance to satisfactory level, in the reasonably foreseeable future;
  5. Work with health specialists on any issues of accommodation and undue hardship;
  6. Be progressive if there is a return to work - endless light duties may not be a helpful form of accommodation and the employee should show progress towards some form of real employment;
  7. Carefully monitor and document the performance and medical progress of employees who do return to work; and
  8. Consult with legal advisers and health specialists prior to taking the ultimate step of dismissal. LAWYERS can assist in preparing a workplace game plan incorporating some of the above guidelines.

Conclusions
If the defence of frustration fails, the employee will be entitled to damages equivalent to reasonable notice as well as any statutory remedies. Statutory remedies tend to be broad, as they are remedial, and will prove to be expensive. An employer should be careful not to be unduly hasty in proceeding with the dismissal of disabled or ill employees and consult with legal and medical advisors to ensure they are not opening themselves up to legal liability.

 


Independent Contractor or Employee

(1) Why do individuals want to be characterized as independent contractors?
  • The individuals are told by their accountants or potential employers that they can take advantage of reduced taxes. At the outset of employment the savings appear attractive. On the other hand the employer is able to save on remittance usually made on behalf of the employees name, such as Canada pension contributions, vacation pay, employee health tax, and worker's compensation premiums.

(2) Why is it important to properly designate an employee relationship as either an employee of independent contractor?

  • There will be serious consequences to wrongly designating an employee wrongly that will incur the employee. An employment relationship is defined not only by what the parties set out in an employment agreement but also by the characteristics of the employment relationship. It is very important to take a close look at the nature of the relationship between the parties to determine whether we are dealing with a traditional employer-employee relationship or a contract for services being provided by an independent contractor. For instance in a wrongful dismissal case, claims are advanced by individuals for reasonable notice and an independent contractor will require far less notice of termination than the notice an employee will be entitled to by law.

(3) How does the law determine an employee's status if there is dispute?

Initially the law will review the employment agreement and a review of the characteristics of the employment relationship. A number of tests have been formulated to answer one basic question: What degree of control does the employer have over the individual in the employment relationship? The more control, the more likely a court will characterize the relationship as one between an employer and employee.

A common test looks at the following key indicators:
  1. Control
  2. Ownership of tools
  3. Chance of profit; and
  4. Risk of loss
The "organizational test" examines whether an individual's work is an integral part of the employer's business operations in determining whether they are an employee.

The courts in determining whether an individual is an employee or an independent contractor, courts consider some of the below factors. One or a number of the above factors might influence the court's decision where a dispute arises in the context of wrongful dismissal lawsuit . If in doubt, your legal advisor will offer an opinion of the court's view of a particular employment relationship, based on the body of case-law which exists.

  • The permanency of the position;
  • Whether the individual works full-time for the company;
  • The fact that the individual is incorporated into a business and paid through that business;
  • The fact that the terms of the contract stated that the individual is an independent contractor;
  • Whether standard wage deductions are made;
  • Whether the employee files income tax return or is self-employed;
  • The fact that the company provide desks, and office space or other facilities for the individual;
  • The fact that a set of company tools, order forms, business cards, equipment, etc. Is provided;
  • The extent to which the company controls the manner and method, time and location of the individual's operations;
  • Whether the individual is part of a benefit, bonus or profit-sharing plan or retirement benefit scheme of the company;
  • The extent of co-ordination/supervision by the company;
  • Whether invoices are submitted for his or her services;
  • Whether competitive lines can be carries;
  • Whether work may be freely subcontracted to other;
  • Whether the individual sets his or her own hours;
  • Whether the company provides vacation pay, overtime, etc.;
  • Whether the individuals takes any business risk;
  • Whether the individual foes his or her open scheduling;
  • Whether the individual performs the same work as employees of the company;
  • Whether there are obligations to the company with respect to the hours of work or vacation time taken;
  • Whether the company his disciplinary power, e.g., For bad performance, absenteeism, etc.;
  • Whether the individual is reimbursed for expenses;
  • Whether the individual's activity is part of the company's business organization;

What Other Legislation Is Applicable ?

Statutes of Law:
  1. Employment Standards Act - The act applies to all employment contracts in Ontario and governs relations between employees and employers, except for federal undertaking that are subject to federal legislation. It also sets out general guidelines and the employer's obligations with respect to Hours of Work, Minimum Wages, Overtime Pay, Public Holidays and Vacation Pay.
  2. Occupational Health and Safety Act - A workplace in Ontario is governed by this act. The regulations contain the details of how these duties are to be carried out and that both the employer and employee are responsible for controlling workplace hazards. An employer has a duty to inform workers about hazards in the workplace, and to train workers in the handling, storage, use, disposal, and transport of equipment, substances, tools, material or agents. In order to understand their obligations, employers should review the legislation and regulations to determine what appropriate steps need to be taken in their workplace.
  3. Worker's Safety and Insurance Act (WSIB) - The act attempts to balance the injured worker's need for assured compensation against the employer's protection from tort liability. An injured worker may not sue his or her employer in respect of an employment related accident. The employee is paid benefits by the Worker's Safety and Insurance Act (WSIB), which is financed by levies on employers. The employer must pay contributions on behalf of its employees at the appropriate rate and when an employee is injured, the employer must also continue contributions for employment benefits in respect of the injured worker.
  4. Employment Insurance Act - When an individual loses her or his job they will usually make application for employment insurance benefits, which are available to employee. An employer is required to deduct and remit employment insurance premiums from an employee's remuneration and to remit appropriate employer premiums. When an individual is found to work under a "contract of service", they are thereby engaged in insurable employment", and qualify for benefits.
  5. Canada Pension Plan - Pursuant to the Plan, employers are required to deduct and remit employee contributions from pensionable employment. Matching employer contribution must also be remitted pursuant to the Canada Pension Plan. S.24 the Canada Pension Plan defines employment as followed: "Employment - 'employment' means the performance of services under an express or implied contract of service or apprenticeship, and includes the tenure of an office."
  6. Income Tax Act - Where reclassification of an individual from an independent contractor to an employee occurs, there will be an effect on the individual's previously filed tax return. This is important tot he individual who seek employee benefits after having classified themselves as an independent contractor. Every person who pay salary, wages, or to other remuneration must deduct and remit income tax from the payment.

 


Employment Contract Issues

The uncertainty of the workplace in the 90's has resulted in the increased use of written employment contracts. Like any other agreement, employment contracts are arrived at through negotiations. Reducing a contract to writing is important in many regards: it provides both parties with a degree of comfort and certainty in having major aspects of the employment relationship defined in the vent of a misunderstanding or when a dispute arises, it reminds the parties of their obligations in the event of a lawsuit, a written contract provides "less" controversial evidence which can be reviewed to interpret the parties' agreement. Certain circumstances will cause a Court not to uphold a written contract.

When Problems Arise And How To Avoid Them :

  • Disputes arise where employers and employees have different expectations. If the parties; rights and obligations are clearly specified in writing, lawsuits can be avoided. Employers are less likely to make promises that they are not prepared to fulfil if they are set out in writing. On the other hand, employees have a clear picture of their employer's expectations. In view of the recent events in the work force, employees are more likely to seek the advice of a lawyer and will want to review a written contract with them. The introduction of a contract in an existing employment relationship, which has never had a written contract, also causes "anxious" employees to consult with a lawyer. On a review of the pros and cons, it would appear that it would always be to the parties advantage to have a written contract in place.

Matters To Be Considered In an Employment Contract :

  • A simple contract can be drafted by the parties themselves, the most important guideline being that the language of the document should be clear in regards to the parties' intentions. If the agreement is complicated or there is a concern that a written contract may not be complete, parties should be encouraged to review the document with a lawyer before it is signed. For many employment relationships, a letter setting out the key matters may suffice. If the parties are considering something more comprehensive, it is important to determine the key provisions to be incorporated in a written contract. Some conditions of employment require necessary intention such as: Performance standards Length of Employment Remuneration Job Duties Non-Competition Non-Solicitation Confidentiality Termination Provisions.

Circumstances that The Court Will Not Uphold the Written Contract

  1. The employees in not provided with an opportunity to seek independent legal advice
  2. The employee signs the contract under duress
  3. The contract falls below the minimum standards of the Employment Standards Act and the employment contract is manifestly unfair.


 


Poor Performing Employees

Employers who intend to dismiss an employee on the grounds of performance-related behaviour should mind their PIP's and Q's.

  • Some of the measures noted will protect the employer in any lawsuits brought by an employee for wrongful dismissal, but may also serve to improve an employee's performance to the extent that dismissal is no longer required. The onus is on the employer to prove cause in the case of dismissal for poor performance, it is important for employers to ensure that the proper steps have been taken and are properly documented, in the event of a lawsuit.

  • Many of my consultations with employees involve performance-related problems. Down sizing and adjustments to the work force during the recession have caused employers to scrutinize employee performance in a manner not done in the past. Nervous employees seek advice on ways to avoid being fired, or at least to protect their entitlement to working notice or pay in lieu of notice.

Legal Standard

  • Employers who are faced with dismissing a non-performing employee must take the following steps:
  • Define the standard of job performance required of an employee
  • Establish that performance in standards were communicated to the employee.
  • Prove that reasonable warnings were given to the employee and that failure to meet the performance standards could result in dismissal.
  • Give the employee a reasonable opportunity to meet performance standards.
  • Provide reasonable supervision and instructions to the employee, and in general, ensure that the employee is provided with proper support.
  • Establish an inability on the part of the employee to meet the performance standards prior to dismissal.

  • The employer must ensure that performance standards conveyed to the employee are clear and consistent, especially those set out in documents such as position descriptions, performance evaluations or job applications.

  • Once a performance problem arises, warnings should be issued setting out the nature of the inadequate performance. A final warning should clearly indicate that a failure to meet the certain performance standards will result in dismissal. I have reviewed many so-called "warnings" over the years that do not set out the consequences of failing to improve. An employee's simple response in a lawsuit is that they did not appreciate the seriousness of the situation.

  • An employer must provide the employee with the requirements for improvements, and reasonable time lines within which performance should be improved. Courts do not look kindly upon an employer that dismisses an employee who is improving his or her performance a short time after a warning is issued.

  • There is an onus on the employer to establish that it did what was required to assist the employee. If an employer has a program or policy for assisting employees with performance problems, the policy cannot be ignored. Poor performance in some instances is caused by inadequate delineation of guidelines or inadequate supervision rather than an inability to perform.

Once The Above Steps Are Taken, The Employer Has A Defence in A Lawsuit for Wrongful Dismissal.

Handling Poor Performers
  • Managers must be properly trained to analyze and deal with performance problems, as their actions are scrutinized in a lawsuit. Supervisory seminars should be conducted to train managers to deal with performance problems in a fair and consistent manner.

  • When a problem occurs, a manager should analyze its causes and inform the employee of the specific steps required to correct the problem. If the intention is to dismiss, an incompetent performer must be advised that dismissal id being considered. With respect to written warning, a progressive discipline scheme should be implemented. One written warning is not enough except in extreme cases. It is prudent to have employees acknowledge that they have received copes of any documents, or at least to record any verbal warnings in the employee's personnel file.

  • The employer should also advise the employee of the standards required, as well as what steps should be taken to improve the performance in given time frame. A useful tool is written annual performance review, where different aspects of the employee's performance are listed and evaluated on a scale. In the case of poor performer, it is important that law scores be recorded in the review, so that the employer will have written documentation as evidence of the employee's inadequacy.

  • One of the worst mistakes an employer can make is to give a positive performance evaluation , and perhaps a pay raise, to an employee shortly before a performance compliant and termination.

Performance Improvement Plans (PIPS)
  • PIPS demonstrate a positive and effective approach taken to remedy performance problems, while positioning the employer to dismiss for cause. A good PIP should include: a clear description of the performance problem; a description of the performance standards to be met. which must be reasonable; a strategy to improve performance, which directs the employee to resources in the company and outlines any steps to be taken by him or her; and a completion date, as well as an outline of the plan, its length and most importantly, dates of performance review.


  • Integral to such a plan are regular performance reviews that outline the strengths and weaknesses of performance, and maintain a dialogue between the employer and employee. Feedback is essential.


  • Finally, employers should consult with legal counsel prior to dismissal of a poorly performing employee. Counsel should review policies and procedures that were applied, to ensure that the employer in not confronted with a future lawsuit.


  • The measures noted below will protect the employer in any lawsuits brought by an employee for wrongful dismissal, however, they may also serve to improve an employee's performance to the extent that dismissal is no longer required.
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