What You Don’t Know Will Hurt You

by Stuart Rudner. Rudner Law

You probably know what happens if you don’t practice good oral hygiene: tooth decay, gingivitis, and even worse. But what about preventative maintenance when it comes to employment law? The simple reality is that most dentists, whether they are the employer or the employee, don’t take the time to understand their legal rights and obligations. As a result, they expose themselves to risk and often weaken their legal position. In many cases, they don’t get what they are entitled to because they don’t know what they are entitled to. Make no mistake about it: the employment relationship is a legal relationship and if you don’t take the time to protect yourself, you will suffer the consequences.

Employment Laws impact virtually everyone, since most of us are either employers or employees. And for most of us, our job, career, or our business are fundamental aspects of our lives and the source of our livelihood. They provide the income that allows you to live the life you want and support yourself and your family. Yet most people spend less time thinking about their legal rights and obligations in their employment relationships than they do choosing a toothbrush.

We work with many dental practices and individual dentists, and we have seen the issues that arise. They are often surprised to learn the following:

• The hygienist that asked you to pay her as a contractor is really an employee, and by paying her “as a contractor” you expose yourself to potential liability;
• Severance is not limited to what is set out in employment standards legislation. Employees are entitled to substantial amounts of severance if they’re let go, unless there is an enforceable contract with a valid termination clause, and those are few and far between. And the difference can be massive: consider that in the right situations, it could mean close to two years of severance rather than eight weeks;
• If you agreed to a contract with a (valid) termination clause, you may have cost yourself more than a year’s compensation when you are let go;
• That said, many termination clauses and employment agreements are not enforceable – see a lawyer before assuming yours is;
• The fact that you are paid by salary does not automatically mean that you are not entitled to overtime pay;
• The assistant that you hired a couple of months ago and isn’t really working out is entitled to termination pay and, in some circumstances, his entitlement may exceed his length of service;
• Employers can’t unilaterally make changes to an employee’s terms of employment, whether it be compensation, hours of work, or otherwise – you would not go to your landlord and tell them that you are reducing your rent payments by 25%; similarly, you can’t go to your employees and impose substantial changes;
• The email from the owner promising a revenue sharing plan may not be enforceable;
• There is nothing stopping a hygienist (or anyone else) from going to a competitor and soliciting all of your patients, unless there is an enforceable restrictive covenant in place;
• Courts will assess any restrictive covenant carefully and will not limit someone’s ability to earn a living any more than is necessary – as a result, most non-competition and many non-solicitation clauses are unenforceable;
• Employees cannot work more than 5 consecutive hours without a break. That said, employees are not automatically entitled to a full hour for lunch, and breaks do not have to be paid;
• You cannot agree that an employee will work overtime and then get extra vacation, or some other benefit, in exchange. Overtime pay is required after a certain number of hours or, if the employee agrees, you can provide time off in lieu.

The Complicated Legal Landscape
In addition to my practice, I lead a course on HR Law for HR Professionals, and the reality is that although the course fills five days, we could easily spend ten times that long and still not cover all the issues in detail. The employment relationship is governed by a complex, intertwining, and ever- changing set of rules and obligations including:

• Employment Standards
• Human Rights
• Occupational Health and Safety
• Workplace Safety and Insurance
• Privacy Laws
• Labour laws,
• Contract Law, and
• The Common Law

Every issue must be assessed bearing all of these legal regimes in mind. For example, you might ask how many sick days an employee is entitled to, and based on the employment standards legislation, conclude that it is three. The Ministry of Labour may even confirm this. However, if the employee has a disability, they will be entitled to accommodation, which might mean additional time off. Simply complying with one set of legislation can expose an employer to liability.

The Importance of the Contract
Contrary to popular belief, every employee has a contract, which is the legal cornerstone of the legal relationship. Unfortunately, most people do not take this seriously and in most cases, the parties don’t take the time to properly consider their situation and ensure that the contract properly protects them. In fact, many people are hired without anything in writing, in which case, they have a verbal agreement.
What may surprise you is that even a “casual” agreement in which the parties agree on core terms such as position, salary, and vacation, creates a legal agreement which also includes many terms that are implied by law. Among many other items, those implied terms include the duty to provide “reasonable notice” of dismissal, which can be months or years.
To avoid this obligation, employers ask employees to sign agreements with termination clauses. Both parties usually make a mistake at this point:

• Employees often agree to the clause without actually understanding what it means and how much it might cost them in the future (we often meet with recently dismissed employees that are devastated to be told that their severance entitlement is tens or even hundreds of thousands of dollars less than it should be because of the contract they signed), and
• Employers don’t spend the time or money to ensure that 1) the contract is enforceable and 2) the clause is valid – with the end result that the protection that the employer thought they had is non-existent.

Ironically, it is not uncommon for individuals that have been let go to see what they signed back when they were hired, and simply assume it is enforceable. They made a mistake at the beginning by signing it, and they make another mistake by failing to consult a lawyer to see if it is actually enforceable. By doing so, they can lose out on tens of thousands of dollars.

Signing a Contract on the First Day is a Mistake
We know how things usually go: a candidate is interviewed a few times and eventually offered the job. The parties discuss core terms such as position and compensation, and agree on a start date. When the individual arrives for their first day of work, they are asked to sign a bunch of papers, including an Employment Agreement. It comes as a surprise to most that in those circumstances, the contract will not be enforceable.

We spend a lot of time assessing whether contracts of employment are enforceable or not. The first thing I check when I review a contract of employment is the date. What I’m attempting to determine is whether the contract was signed before or after there was already a verbal agreement in place. In many cases, the employee’s starting date and the date that they executed the contract are one and the same. That is pretty telling, since most people would not have shown up for work unless some sort of agreement had already been reached. When explaining these concepts, lawyers often refer to “consideration” as being a requirement of a valid contract.

We often receive celebratory calls from our employment clients, announcing that despite our concerns, all is good because the employee signed the contract. As we explain, the issue is not whether the employee signs, but whether a court will enforce the contract down the road. Typically, this will not be an issue until the time of termination, when the employer will purport to rely upon the termination clause and the employee, or their lawyer, will take the position that the contract is unenforceable due to a lack of consideration.

The bottom line is that the requirement for consideration is a fundamental aspect of the law of contract. Rather than putting themselves in a precarious situation where contracts of employment that they have spent time and money preparing may not be worth the paper that they are written on, employers can easily avoid such a result by entering into a contract of employment properly.

Instead of making an offer, having it accepted, and then attempting to put a written contract in place, our firm trains its clients on the proper way to enter into a contract. Once the candidate has been selected, they should be advised that the organization intends to make an offer of employment to them based upon the terms and conditions set out in a written agreement. They should then provide that agreement to the candidate and provide them with a reasonable amount of time to review the offer, consider it and seek any professional advice that they choose. In the meantime, while there may be a proposed start date, the parties should not proceed on the assumption that the individual will become an employee. As I have explained to many employers, it is hard to argue that the contract was only entered into on April 1 when the hiring was announced in a company-wide email on March 15. It is only once the employee has accepted the terms and conditions that a contract is in place and the parties should begin preparation for the employee’s first day.

Contracts for Current Employees?
When we explain to employers how they can benefit by using employment contracts, they sometimes announce that they will immediately have all their staff sign one. The problem, again, is consideration: just because the employee signs does not mean it will be enforceable. Unless they received something of value in exchange for their agreement (such as a promotion, salary increase, etc), or they were provided with notice of the change (which can be extensive), simply putting a new contract in place is usually a worthless practice.

Many termination clauses are not enforceable
Even if the contract is enforceable, courts will closely scrutinize the wording of any termination clause. To begin with, it must be clear and unambiguous, and there should be no doubt that the individual is giving up any entitlements beyond those set out in the contract. The common provision that “you will be entitled to notice of dismissal in accordance with employment standards legislation” will not suffice, as such wording does not clearly state that the individual will not have additional entitlements beyond the employment standards legislation. If the language in an employment contract is open to several interpretations, the court will interpret the employment contract in the way most favourable to the employee.

As I often advise employers, if you want to be confident in the clause, make it as clear as possible, in plain English. You do not want the employee to be able to credibly state that they did not understand the consequences of agreeing.

The termination clauses cannot breach employment standards legislation
The other key factor is whether the termination clause breaches applicable employment standards legislation by providing for less than the individual would be entitled to under that legislation. For example, a termination clause that provides for three days of notice of dismissal will not be enforceable, as every jurisdiction requires more notice than that (at least after the probationary period). Most courts will invalidate a clause even if it has the potential to breach employment standards legislation. For example, if it provides for four weeks of notice of dismissal, that is more than the employee is entitled to in the first few years. But since it would be a breach in the future, it will not be enforced.

Entire Agreement?
Most well-written contracts contain an Entire Agreement clause. What that means is that any “side agreements”, even in writing, are worthless. So even though you may have an email message, or even a signed document, saying that in addition to your salary, you will also get a portion of the revenue, you will not be able to enforce that right. It is amazing how often we meet with people who were promised things but told that they cannot be referenced in the contract. In this context, “trust me” is not a good idea.

Termination of Employment
The discussion above is focussed on the beginning of the employment relationship. That is a critical stage, when most rights and obligations of the legal relationship are established. The other end of the relationship is usually the most contentious, and that is when we are often called in to advise and represent one of the parties and ensure their rights are respected.

If the individual is hired pursuant to a fixed-term contract, then their employment will end when that term ends. If, however, they are allowed to continue working, their contract becomes one of indefinite duration, and they will be entitled to notice or severance if they are subsequently dismissed without cause.

There are only two types of dismissals in Canada. 1) With just cause, and 2) Without just cause.

I often tell my clients that a just cause is not a lost cause. Employers should not shy away from summary dismissal where it is appropriate. But they should proceed cautiously and with an understanding of the legal principles.
The vast majority of dismissals in Canada are without cause. They include downsizings, restructurings and similar situations. In that case, the employee is entitled to notice of dismissal or pay in lieu thereof, often referred to as severance.

This will surprise many, but in Canada, most employees can be dismissed at any time, for almost any reason. However, unless there is just cause for dismissal, notice or pay in lieu is required. The question, then, is what are they entitled to?

Contrary to popular belief, dismissed employees are not automatically entitled to a “package”. Employers can offer working notice, salary and benefit continuance, a lump sum, or a combination of the above.
In order to determine an employee’s entitlement to notice or severance, regard must be had to:

• Employment standards legislation,
• The common law, and
• Any enforceable termination clause in a contract.

Reasonable Notice
Employment standards legislation sets out the minimum entitlements, and it is based solely upon length of service. However, that is only one small part of the assessment. The common law requires that “reasonable notice” be provided, and this is based upon a number of factors, including:

• The employee’s age,
• Length of employment,
• The nature of their position / character of employment, and
• The availability of similar employment.

Another commonly considered factor is whether or not the individual was induced to leave previous secure employment.

It is important to remember that this is an art and not a science. Unlike the statutory minimums, reasonable notice is not calculated based solely upon an individual’s length of service.

While many of us have heard of the mythical rule of thumb that everyone is entitled to one month of notice for every year of service, the courts have made it clear that this is not the law.

An analysis of the awards made by the courts in wrongful dismissal cases from the last few decades demonstrates that there is no such pattern. The data also shows that short-term employees tend to receive disproportionately lengthy notice periods, contrary to what many suspect. In addition, the data shows that an individual’s position, and their age, can have a significant impact upon their entitlement.
Of course, the uncertainty of the common law can be avoided altogether by using a contract. That is why I recommend contracts for every employee.

The Duty to Mitigate
It is important to bear in mind that the entitlement to severance is subject to the dismissed employee’s duty to make reasonable efforts to find new work, and if they do obtain new employment, your obligation to them will be reduced. As a result, someone may be “entitled” to a lengthy notice period, but if they find new work within that period, your obligation will be reduced.

As discussed above, the obligation to provide reasonable notice can be displaced by a properly-drafted termination clause in an enforceable contract of employment. Such a clause will help you to avoid the cost and risk of trying to determine what is reasonable; instead, you can simply look at what the contract provides.

Notice or a Package?
By law, employers have several options when dismissing an employee without cause. The law allows employers to decide whether they will provide:

• Working notice,
• Salary and benefit continuance,
• A lump sum payment, or
• Some combination thereof.

In some cases, it will be appropriate to provide a period of working notice. This can often be effective in periods of transition, such as where a department is being shut down and the members of the department are needed to help with the process.

In other cases, you may have a long-term employee that will be entitled to extensive notice or severance. However, they may be highly employable, and it would make sense to structure the package so that their entitlement is limited if they find new work quickly. After all, the entitlement to severance is subject to their duty to make reasonable efforts to find new work, and if they do obtain new employment, your obligation to them will be reduced. As a result, it can be to your advantage to assist them in finding new work.

If the contract of employment includes a resignation clause, that will establish how much notice the individual must give if they are leaving. Otherwise, they must also provide reasonable notice. Contrary to popular belief, that is not necessarily two weeks. In some cases, involving employees that are more senior or more difficult to replace, several months may be required.

It is also important to note that an employer is generally not entitled to accept the resignation but reject the amount of notice. In other words, if the employee provides 3 months of notice of resignation, the employer cannot respond by saying that they must leave in two weeks and wil not be paid beyond that. Of course, the employer is entitled to waive the notice period by not requiring the employee to work, but they must continue to pay them.

Strategic planning, enforceable contracts, effective workplace policies, and properly-implemented procedures are the employment law equivalent of brushing and flossing, and can be tremendously beneficial in avoiding legal claims from employees. This is true of both day-to-day practice operations and practices in transition.

Restrictive Covenants
(Non-Competition, Non-Solicitation, etc)
By default, there is nothing stopping an employee from leaving (voluntarily or otherwise), joining the competition (or starting their own competing business) and immediately going after the patients of their former employer. As a result, many dentists try to protect themselves by having their associates and staff sign non-competition or non-solicitation agreements. The problem is that many of them will not withstand judicial scrutiny.

From a judicial perspective, courts struggle to balance the rights of individuals to earn a living with the rights of employers to protect their legitimate business interests.There is a presumption against unreasonable interference with an individual’s ability to earn a living, and restrictive covenants will only be enforceable where they are deemed to be reasonable. There must be a legitimate business interest to be protected, and the terms and scope of the covenant must be reasonable.

Any restrictive covenant will be subject to scrutiny, as courts are reluctant to unnecessarily interfere with an individual’s ability to earn a living. Any covenant will have to be outwardly and subjectively reasonable and justifiable. By default, non-competition covenants, which preclude an individual from taking any job in the same industry, will be seen as unreasonably restrictive and therefore, unenforceable. The employer seeking to enforce such a clause will have to show that it is reasonable in the circumstances. Even if a court agrees that circumstances warrant a non-competition covenant, the specific terms will be assessed in order to determine whether they are reasonable. These include the length of time, the geographic scope, and the scope of companies that would fall within the limitation.

Conversely, courts are more willing to enforce non-solicitation covenants. These covenants allow an individual to work for any organization, but preclude them from pursuing their former employer’s customers for a specified period of time. As a result, it does not shift the individual out of their chosen industry. Again, however, the employer seeking to rely upon such a clause will have to show that the terms are reasonable. In this context, the terms in question will typically be the length of time and the scope of customers or potential customers that are included.

It is critical to bear in mind that courts will not “fix” clauses that they deemed to be unreasonable. In other words, if a court finds that a non-solicitation covenant of 6 months would be appropriate, but the one places for 4 months, they will not reduce it to 6. Rather, the clause will be Struck out in its entirety. As the Rolling Stones say, you can’t always get what you want, but you get what you need. This is the approach that the courts will take in determining whether a cause is reasonable.

What to Do? Get a Checkup
It may sound self-serving, but you should work with a lawyer that specializes in Employment Law. We have seen too many dentists try to run a dental practice and end up spending far too much money on labour issues while being powerless to impose the rules they want. And we have also seen associates that sign off on terrible agreements, leaving themselves exposed to oppressive working conditions without any job security.

If you are an employer, make your Employment Lawyer a part of your team of strategic advisors. Work with them to put strong contracts, policies and procedures in place, and then seek their advice whenever issues arise. If you are an employee, make sure that you get proper advice before signing anything that might impact your legal rights, and consult with an Employment Lawyer if there are any issues or concerns about your legal rights.

As I often say, “If you think you might need an Employment Lawyer, you do”.

About the Author

Stuart RudnerStuart Rudner is the founder of Rudner Law, a firm specializing in Employment Law (or HR Law, as it is often called). He is the author of You’re Fired! Just Cause for Dismissal in Canada and has contributed to several other leading texts. He also speaks at and chairs various conferences and courses, and is regularly interviewed by the media on Employment Law issues.

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