Dec 5, 2013 / 5:00 am
One of the more controversial areas in employment law is the effect of restrictive covenants often found in employment contracts. These restrictive covenants can take various forms such as non-competition or non-solicitation clauses. Their basic effect is to prevent a departed employee from competing with his previous employer either through the use of information or technical knowledge acquired during the term of the employee’s employment or approaching customers of his previous employer. There is an inherent conflict in the interests of the employer and the past employee which the Court struggles with when dealing with restrictive covenants and the court tries to strike a balance often to the dismay of one of the parties. The key interest of the employer that it seeks to protect through the use of a restrictive covenant typically is its existing client base and/or technical knowledge that the employee has gained access to during the course of his/her employment. On the other hand, the Court also recognizes an employee’s inherent right to earn a livelihood. These conflicting interests can sometimes give rise to difficult issues when dealing with the interpretation of restrictive covenants contained in employment contracts. Two significant decisions of the Supreme Court of Canada establish the basic principles to be applied when dealing with restrictive covenants. Those cases are Elsley v. J.G. Colins Insurance Agencies Ltd. and Shafron v. K.R.G. Insurance Brokers (Western) Inc. The principles derived from those cases have been recognized and applied by courts in British Columbia on numerous occasions. They are as follows:
- Restrictive covenants are by their very nature restraints of trade;
- Restraints of trade are prima facie void as they are contrary to public policy;
- As in most cases, there are exceptions to the rule in that restraints of trade may be justified if the restriction contained within them is reasonable;
- In determining whether or not a restrictive covenant is reasonable, the court is to consider the geographical area to which it applies, the period of time for which it applies and the nature of the activity which is prohibited under its terms;
- Typically, the Courts will apply more rigorous scrutiny when considering restrictive covenants contained in employment contracts because of the imbalance of power between the employer and the employee which is inherent in the employment relationship;
- In order for a restrictive covenant to be valid, it must be drafted so as to protect a legitimate proprietary interest of the employer.
There have been numerous cases in British Columbia applying these principles to the enforceability of restrictive covenants. As you can probably imagine, the cases are largely “fact-driven”. Typically, the issue first rises shortly after the departure of an employee who uses his knowledge and/or technical expertise acquired during the course of his employment to approach and attempt to solicit customers of his previous employer. In that circumstance, the employer will often respond by applying to the court for an injunction to prevent the activity and enforcing the terms of the restrictive covenant. It is at that time that the court then will consider the facts against those principles established in Elsley and Shafron. If the court should find that the restrictive covenant has been breached it may issue an injunction to prevent further activity that is in violation of the covenant and may also award damages to the employer for the loss of business occasioned by the past employee’s breach. Alternatively, the court may determine that, for instance, the geographical area encompassed by the restrictive covenant or the period of time for which it is to run is unreasonable and is therefore in restraint of trade. In that instance, the Court will refuse to uphold the terms of the restrictive covenant. As stated earlier, these cases are largely fact-driven and in many instances are difficult to predict as to how they will ultimately end.
Article written by: Mark Baron
Nov 21, 2013 / 5:00 am
Courts may impose “punitive damages” on an employer who dismisses an employee in a particularly harsh, vindictive, or reprehensible fashion. This type of damages is meant to punish a defendant and serve as an example to others who might seek to act in a similar way. Historically, our courts have been reluctant to issue large awards for punitive damages in wrongful dismissal lawsuits, with the measure of the award typically being limited to the amount the employee would have received had he not been dismissed unfairly. However, the recent British Columbia Supreme Court decision in Kelly v. Norsemont Mining Inc., 2013 BCSC 147 (“Kelly”) suggests our courts are becoming less reluctant to issue larger awards to employees who have been dismissed by their employers in an egregious fashion.
The employee in Kelly was dismissed for insisting that his employer comply with securities regulations. Rather than admitting to this reason for dismissal, the employer leveled several unjustified allegations against the employee: that he was incompetent, that he had misrepresented his qualifications, and that he had engaged in civil fraud.
Further, after having terminated the employee, the employer withheld his last month’s pay to coerce him to sign a document releasing the employer from future legal action. Then the employer withheld personal items belonging to the employee and finally threatened to bankrupt the employee and interfere with his ability to earn future income.
As well, the employer’s witnesses continued to make cruel and unnecessary comments about the employee during trial.
The Court held this conduct was “deserving of the strongest rebuke” and granted the employee an award for punitive damages in the amount of $100,000.00. The Court’s decision in Kelly shows employers who make unsubstantiated allegations against employees in the hopes of using the threat of prolonged litigation to coerce settlement, or to subsequently discover conduct by the employee which may justify the allegations, should rethink their approach to dismissals, lest they be faced with a substantial punitive damages award after trial.
Oct 24, 2013 / 5:00 am
With the decline in general economic activity and increasing competition from low wage countries what can employers do to lower their labor costs?
A human resources professional could help with issues concerning motivation and productivity. An engineer or technician could help with respect to technology and modernization of processes and procedures. This article will discuss the legal issues surrounding reduction of workforces or changes in the terms and conditions of employment.
Temporary Reduction of Workforce
Generally speaking an employer has the right to lay off employees due to shortage of work. However, some employees may be entitled to common law severance or notice where a layoff is not a normally expected as part of that occupation. For example, construction workers are typically not entitled to notice of layoff, however, a full-time employee of a grocery store would be entitled to notice. This right of severance pay or notice is only triggered if the affected employee withdraws services and claims constructive dismissal.
In both the union and non-union sectors, programs are available for temporary assistance with reductions in workload through the work share program administered by Employment Insurance Canada.
Permanent Reduction of Workforce
In the event that employees are terminated (a layoff greater than 13 weeks is deemed to be a termination), rather than being laid off, in most instances both statutory severance and common law severance pay or notice will be required.
Where a large number of employees are terminated the group termination provisions of the employment standards legislation would likely apply to require the employer to give the greater notice sent out in the legislation.
The fact that a business is failing or has insufficient profit to continue is not an answer to a claim for severance pay.
In the union sector, collective agreement provisions must be considered. Most collective agreements contain provisions dealing with the employer's responsibility in the event of shortage of work. Collective agreements often require an employer to a consider issues of seniority before making decisions on temporary or permanent reductions of workforces.
In a limited number of industries or where employment contracts are of definite duration, employers may not have an obligation to pay severance pay on layoff or termination.
Negotiating or Introducing a Reduction of Salary
There is an increasing trend, given present economic circumstances and global competitiveness, for employers to reduce the amount they are paying employees. An example is the impasse between the government and teachers in British Columbia and, most recently, the lockout at the Electro-Motive Diesel plant in London, Ontario.
Electro-Motive locked out its employees after they refused a 50% reduction in pay. The issue in this case and others is whether in the union sector and employer can demand such significant concessions without its conduct being classified as bargaining in bad faith. In the union sector, employers are obliged to bargain in good faith and make every reasonable effort to conclude a collective agreement. An employer conducting negotiations with the intent of "busting the union" would not be bargaining in good faith and would be subject to complaints to the Labor Relations Board. The Board has a broad jurisdiction to remedy such conduct and to award compensation or order arbitration in appropriate cases.
An employer is entitled to use hard bargaining tactics but it must be prepared to rationally and reasonably explain its demands for concessions to the union at the bargaining table. If the employer makes a reasonable business case for the requirement for such drastic concessions and bargains to impasse it is perfectly entitled to make the kind of offer made in the Electro-Motive case.
In the non-union sector, employers have far greater latitude to unilaterally reduce the wages of their employees, however, significant wage reductions could amount to constructive dismissal. The affected employees could withdraw their services and recover severance pay. There are many techniques available to employers to minimize their exposure to severance pay claims which are beyond the scope of this article. Suffice it to say that employers can reduce wages and compensation without significant exposure to liability if done carefully and respectfully.
In the next few decades we will see a continuing struggle to adjust wages and salaries of Canadians to better reflect their true economic value. Unions will likely lose the ability to maintain wages at higher levels than are warranted in the long run. Employers will be more proactive in adjusting wages upward and downward to ensure that they are not overpaying for the labor component of the production costs. The courts and labour relations boards will be busy dealing with the legal fallout from such adjustments. Employers are well advised to seek professional assistance prior to making drastic changes to existing employment relationships.
Article written by Alf Kempf
Sep 26, 2013 / 5:00 am
Many non-lawyers (and many non-employment lawyers) will make reference to a “rule of thumb” that provides that a terminated employee is entitled to one month per year of service.
However, in two recent decisions, the British Columbia Courts have re-affirmed that there is no “formula” or rule of thumb that can be applied in determining how much notice an employee may be entitled to on the termination of their employment.
In Kerfoot v. Weyerhaeuser (2013 BCSC 640), two employees of Weyerhaeuser complained that they had not been provided adequate notice when their employment with Weyerhaeuser was terminated on the sale of Weyerhaeuser’s pulp mill in Kamloops. The employees were long time non-union Weyerhaeuser employees who had been employed by the company for 15.75 years and 18.4 years respectively. At trial, the trial judge set the period of reasonable notice by applying a formula of one month for each year’s service. On that basis, the two plaintiffs were entitled to 15.75 months and 18.4 months notice.
Weyerhaeuser appealed this decision and was successful (Kerfoot and Harshenin v. Weyerhaeuser (2013 BCCA 330). The British Columbia Court of Appeal held that Weyerhaeuser was correct to complain of the formulaic approach adopted by the judge. The Court of Appeal re-affirmed that the correct approach is to consider what is objectively reasonable in the variable circumstances of each case, but that the most important factors are the responsibility of the employment function, age, length of service and the availability of equivalent alternative employment, but not necessarily in that order.
In the case of the two Weyerhaeuser employees, one of them was an Operations Superintendent and the other was an Electrical Project Engineer. The Operations Superintendent earned 20% more than the Engineer. They were employed for 15 years 9 months, and 18 years 5 months respectively. They were close in age, 43-years-old and 45-years-old respectively. The Court found that the Operations Superintendent held the more responsible position. Both men had degrees in applied sciences.
The Court of Appeal, considering all of these factors, set the notice period at 15 months for both men, noting that the difference in responsibilities of the Operations Superintendent was roughly balanced by the years of service of the Engineer.
This process of considering various relevant factors in setting a notice period is also clearly demonstrated in the British Columbia Supreme Court decision of Ellerbeck vs. KVI Reconnect Ventures Inc et al.(2013 BCSC 1253).
Ms. Ellerbeck was a certified management accountant who was employed as the defendants’ corporate controller for about three and one-half years. She was 56 when she was hired, and was one day short of 60 when her employment was terminated. She was the senior financial officer for the defendants and supervised three employees in the finance department. At the time her employment was terminated, Ms. Ellerbeck’s salary was nearly $110,000 per annum, and she was entitled to various benefits and an annual bonus.
The employer argued that Ms. Ellerbeck should be entitled to only 10 weeks of severance, and alternatively relied on the general “rule of thumb” of one month notice per year of employment, in which case the notice period would be 3 and one-half months.
The Court considered Ms. Ellerbecks’s age, her senior level management position, and the fact that Ms. Ellerbeck remained unemployed (despite her reasonable efforts to find work) at the time of the trial, which was some 16 months after her employment was terminated. Rejecting the “rule of thumb” approach, and notwithstanding Ms. Ellerbeck’s relatively short length of service, the Court took into account all of the relevant factors, and found the period of reasonable notice of payment or payment in lieu of such notice was ten months.
Both of these cases highlight the fact that however simple or attractive it may appear to apply a formula in assessing notice periods for terminated employees, the law is, not surprisingly, more complicated than that.
Article written by Joni Metherell
Read more On the Job articles
- Nice try Sep 12
- The entire employee file? Aug 29
- My contract says I can't compete Aug 15
- Put it in writing! Aug 1
- But Employment Standards said... Jul 18
- Alchohol testing in unionized workplace Jul 4
- The independent contractor trap Jun 20
- Take this job and shove it! Jun 6
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