Some workplace laws have taken a back seat during the pandemic. This may be about to quickly change.
Over the past several months, companies across Canada have adapted to their new realities, often at the expense of some of their employees. Mass temporary and unpaid layoffs were implemented. Companies closed, then reopened, and some jobs vanished. Those employees who remained were faced with salary cuts or reductions in hours or duties. Many of these measures were unlawful, exposing employers to wrongful and constructive dismissal claims.
More recently, employers have used the pandemic as a catalyst to rewrite their hiring agreements and workplace policies in order to provide them with far greater flexibility to make these same moves but with perceived protection from the stream of lawsuits that could otherwise follow. The thinking is that if a contract clearly sets out what can be done, then employees will be unable to challenge it. However, two recent important court cases may turn this theory on its head.
This month the Supreme Court of Canada released its decision in Matthews v. Ocean Nutrition. Employers commonly compensate employees with stock options, long-term incentives and other bonuses. Nearly all of the written terms surrounding these plans state that once an employee leaves, for any reason, their rights under those plans are forfeited. Thus when employees are dismissed, most of them are unable to claim damages for their lost perquisites even though they did not choose to leave. But not any more, according to the Supreme Court.
David Matthews was a senior employee who resigned from his job owing to the actions of a disapproving manager. One year after his departure, the company was sold. Matthews sued, claiming that if he were not forced out, he would have received $1-million under the terms of the company’s long-term incentive plan that he participated in. However, the plan language appeared to exclude his entitlement once he was no longer employed. The Supreme Court agreed with Mr. Matthews, finding that contractual clauses which are intended to limit employees' rights should be interpreted in their favour.
In my experience, the language in Mr. Matthews' contract was clearer and more explicit than in most. However, the Supreme Court took a distinctly pro-employee approach toward interpreting the agreement, even suggesting that certain contractual clauses have to be specifically brought to the attention of employees in order not to be void. This sets a sky-high standard.
The impact of this case will be profound as virtually every dismissed employee will now assert entitlement to bonuses or other incentives that would have accrued to them following their departure, even where the terms of their contracts state otherwise.
In another important recent decision, a June ruling by the Ontario Court of Appeal may have undermined most of the severance clauses across the country. The most important component of any written employment agreement is how it can lawfully end. Non-union employment can only be terminated with reasonable advance notice or a payment in lieu of it (a.k.a. severance). This is calculated based on an employee’s age, tenure, and re-employment prospects. However, a properly worded employment contract can limit severance terms to only the minimum provincial or federal employment standards requirements, which in most cases is only a fraction of what would otherwise be required. To reduce severance costs, employers have increasingly designed contracts to do just that.
In Waksdale v. Swegon North America Inc., the Court of Appeal ruled that if any portion of the termination language offends employment standards laws, or could do so in the future, then the entire section of the contract is invalid. This basically signals to employers that when drafting severance clauses, the standard is one of perfection. Any remote or hypothetical inconsistency with employment standards is enough to see the clause struck down. This provides dismissed employees and their lawyers with significant ammunition to challenge severance-limiting clauses once thought to be ironclad.
Appeal courts, and particularly the Supreme Court, rarely address workplace rights. But when they do, they usually intend to make a statement. By sending employers back to the contractual drawing board these two decisions signal a far more protectionist view of employee rights. Thus, even where employers have implemented contractual language intended to immunize them from liability to workplace lawsuits, the courts may now be inclined to find a workaround.
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Daniel Lublin