Employment Law - Forte Law

Employment Law, Layoff, Wrongful Dismissal

BC Court Awards Punitive Damages to Employee based on Errors in Employer’s Termination Letter

The fine print matters in termination letters, even in mass layoffs. The wrongful dismissal case of Moffatt v. Prospera Credit Union, 2021 BCSC 2463 is a cautionary tale for employers in British Columbia. In Moffatt, the Court took the highly unusual step of ordering the employer to pay punitive damages for mistakes in its termination letter. In doing so, the Court recognized the vulnerability of recently terminated employees:

This is a situation concerning recently terminated employees who are potentially significantly vulnerable, and in distress. The Defendant’s lack of attention to detail in the termination letter, especially where the errors fall so clearly in their favour, is unacceptable, and draws an award of punitive damages.

The errors in the termination letter included: (1) an offer of two weeks pay pursuant to the Employment Standards Act which was less than the three months the employee was entitled to receive based on her employment contract, and (2) a doubling of the non-solicitation period of the employee’s contract. The Court also noted that the employer instructed the employee to sign a release of claims within one week.

Punitive damages are rarely awarded in wrongful dismissal cases. The Supreme Court of Canada has stated that “conduct meriting punitive damages awards must be ‘harsh, vindictive, reprehensible and malicious’, as well as ‘extreme in its nature and such that by any reasonable standard it is deserving of full condemnation and punishment.’” Honda Canada Inc. v. Keays, 2008 SCC 39.

In Moffatt, the employer argued that the errors were not intentional, harsh, vindictive, reprehensible or malicious, but were an oversight that occurred while preparing over 100 termination letters as part of a reorganization. Basically, the argument was that it was just a mistake. In rejecting this argument, the Court stated:

[T]here is an obligation on an employer terminating an employee in such circumstances to act in good faith and reasonably. A ‘cookie cutter’ termination letter drafted without regarding to the individual circumstances of each employee falls short of the standard required.

* * *

The volume of termination letters an employer issues does not lessen the obligation to ensure they are correct. There is no volume discount on correctness for termination letters.

The employer also argued that it was willing to correct the errors when the employee’s lawyer pointed them out. The Court refused to let the employer off the hook:

The Defendant’s argument highlights the crux of the problem. In this instance, the Plaintiff hired a lawyer. Had she not, these errors may not have been discovered and corrected. Given the circumstances of a termination, and its highly emotionally charged nature, it is equally as likely that the plaintiff, or others in her position, could have simply signed the termination letter.

The Court acknowledged the test for punitive damages from Honda but noted that punitive damages may also promote the goals of deterrence and denunciation. The Court went on to award punitive damages for the “purposes of deterrence and denunciation” in the amount equivalent to two-and-a-half months’ salary which was the amount the employee would have lost if she had signed the termination letter. While not calculated in the decision, this appears to be around $7,500 in punitive damages. The punitive damages were in addition to an award of 3 months’ pay in lieu of notice.

Lesson for Employers: Termination letters should be prepared meticulously with careful reference to the employee’s employment agreement and the requirements of the Employment Standards Act. Even innocent mistakes can be costly.

Lessons for Employees: Do not take an employer’s termination letter at face value. Refer to your employment contract and the Employment Standards Act before signing a termination letter or release and have your termination package reviewed by an experienced employment lawyer.

This blog is not intended to serve as legal advice, and only provides general information. Every situation must be considered on its own facts. Need legal advice? Contact us by phone at 604 535-7063 or email [email protected].

Employment Law, Layoff

Layoff in the News

Layoffs in the News – What are the Rules?

With recession in the headlines and daily reports of companies in the tech sector laying off large numbers of employees, many people are wondering what the difference is between a layoff and a termination and what their rights are in either circumstance. Here are some frequently asked questions, answered for non-unionized employees in British Columbia.

My employer told me I have been laid off. What does that mean?

A layoff in most cases is the same thing as being terminated or fired. Once an employer is no longer providing work to be done or paying an employee, employment has ended. Since layoffs are driven by the financial circumstances or strategic decisions of the employer, and not employee misconduct or poor performance, notice or severance pay is owed.

Employers can only lay off an employee without effectively terminating their employment if:

The employment contract expressly allows for temporary layoffs;
Layoffs are a well-known and longstanding industry-wide practice (like in logging where work cannot be performed at certain times of the year); or
The employee agrees to the layoff.

Even if one of these conditions apply, the layoff must be short-term and temporary under the BC Employment Standards Act. Unless one of these conditions exists, then a layoff is the same as a termination of employment.

If I am laid off because my company is having financial trouble, do I still get severance pay?

Yes, in most cases you are still entitled to reasonable advance notice of termination or severance pay. The employer’s financial situation generally does not impact your entitlement to severance pay. Unless there is a bankruptcy or other similar legal proceeding underway, the financial situation of the employer does not impact the requirement to pay employees severance or provide notice.

What if I am part of a large group of employees being laid off?

If 50 or more employees are terminated from the same location within a 2-month period, as a minimum standard, the employer is required to give specific notice, or pay in lieu of notice as set out by the BC Employment Standards Act. The amount of notice depends on how many employees are being laid off but can range from 8 weeks to 16 weeks.

Over and above the Employment Standards Act minimum requirements, employees are often entitled to common law severance. In determining how much severance pay is required, judges will consider availability of alternative employment. In an industry downtown or recession, this may mean that more severance is owed than in a job seekers market.

Do I need to hire a lawyer if I am laid off?

An employment lawyer can assess your severance pay entitlements taking into consideration your contract, legislation, and legal precedents, so you know whether what you have been offered is fair and reasonable. If the offer is not reasonable, our lawyers will build a gameplan with you to negotiate for something fair. In most cases this can be done in a single meeting, for a flat fee. We don’t take a percentage of your severance pay. Contact us at [email protected] or 604-535-7063 for more information.

Constructive Dismissal, Employment Law, Human Rights, Maternity leave

Four Things to Consider When Adopting a Parental Leave Policy

Employers typically consider maternity and parental leave policies when they want to incentivize employees to return from their leaves after having a child, and also when they realize that supporting their employees financially while on a period of a reduced income makes sense for long term employment relationship. Particularly, in the current Canadian job market which has been described as a “candidate” job market. Here are four things to keep in mind:

1. Is a policy necessary?

Unless there is anything additional or extra that you are providing your employees, your workers may already be protected by B.C.’s Employment Standards Act (the “Act”) (see sections 50 and 51), and the Employment Insurance (EI) regime. If your workforce is excluded from the Act (as are architects, engineers, lawyers, naturopaths, insurance agents, and others) you can still use the Act as a reference for how to manage these types of leaves[i].

2. What you need to know to get started.

If you decide that your organization needs a policy, make sure you understand the difference between:

1. Maternity Leave, which includes an EI benefit maximum of 17 weeks. This benefit is for the person who is about to, or has, given birth; and
2. Parental Leave, which includes an EI benefit maximum of 35 weeks (“standard”) or a maximum of 61 weeks (“extended”). This benefit is for either parent, or for adoptive parents.

Keep in mind that the parental leave can be taken once the maternity leave has expired, turning the standard leave into 52 weeks, and the extended leave into 78 weeks (18 months). Also keep in mind that Parental leave can be taken at any time within the first 18 months of the child’s life, or the first 18 months of the child being placed with the adoptive family.

3. Will you top up?

If you are providing your employees with a supplementary amount to their EI benefit, or “Top-UP” a policy is definitely recommended. Consider:

a. The reasons behind providing the Top-Up. If your goal is to incentivize parents to return from the leave and to stay with your organization, say so in the policy. Also, a repayment clause may be appropriate. For instance, “should you resign during the leave, or in a period of 6 months from your return from leave, you will repay the amount of the Top-Up in full”.

b. The amount of the Top-Up. Crunch the numbers and determine how much you can afford and for how long you will provide the Top-Up. Also consider what your competitors are doing. Some employers provide 60% of the difference between the employees’ pay and the EI benefit. Others provide much higher percentages, with some employers toping up to 100% of the wages. The period of time can also vary from 6 weeks on the lower end, to the full 78 weeks at the higher end, with most employers capping the top up somewhere between 35 weeks and 52 weeks. Because you will need to know how much the employee is receiving in EI to calculate the Top-Up amount, it makes sense for you to make the employee’s receipt of the Top-Up on the condition that they receive EI.

c. The eligibility for the Top-Up. Is this something you want to provide to all employees as of day one? Or something you want to reserve for your permanent full-time employees with a certain amount seniority? Since this is not a benefit that is required under the Act, you have flexibility as to who gets it and when, as long as you are not running afoul of the B.C. Human Rights Code.

4. What should happen while the employee is away.

If your workforce is covered by the Act, then you need to ensure to continue to calculate annual vacation, to continue benefits and to count their time away to their length of service with your organization, as if the employee was actively at work during that time. If the employee paid some of the premiums for the benefits, you can arrange for the payments to continue to be made by the employee while they are on leave.

Also, upon the end of the leave, employers have an obligation to provide the employee with their same position or an equivalent one. Make sure that anyone you hire to cover the employee that is on leave is hired under a temporary employment agreement with a notice of termination provision that allows you to welcome the employee on leave back without delay.

[i] The information in this blog applies to workplaces that are provincially regulated and does not apply to workplaces that are federally regulated (i.e. banking, shipping, telecommunications) and covered under the Canada Labour Code (“CLC”). The maternity and parental provisions of the CLC are similar to those of the Act, and can be found at sections 206, and 206 of the CLC.

Constructive Dismissal, Employment Law, Human Rights, Maternity leave

A Win for Mom – tribunal finds employer discriminated against employee on maternity leave

The Human Rights Tribunal recently found that Prince George Ford (“Ford”) discriminated against new mom Mellissa LaFleche based on sex and family status contrary to the section 13 of the Human Rights Code.

While on maternity leave, employee Ms. LaFleche went to her employer, Ford for a meeting about her return to work. It was an informal meeting and Ford had not thought through what it was going to say. There was conflicting evidence about what Ms. LaFleche was told at that meeting, but the Tribunal found:

“the clear inference from this discussion is that, at best, Ms. Callaghan [the woman filling in for Ms. LaFleche during her maternity leave] would retain marketing manager duties and Ms. LaFleche’s role would significantly change”, (paragraph 44).
“It was clear from the surrounding discussion that [Ms. LaFleche] would not be returning to the same duties and role…” (paragraph 45).
LaFleche felt humiliated, distressed and nervous about money and lost sleep, her appetite, a sense of security and enjoyment of maternity leave (paragraph 50).

Ford told Ms. LaFleche that it would follow up with her after the meeting about what position or duties it would have for her on her return, but it did not.

The Tribunal considered whether Ford had constructively dismissed Ms. LaFleche – constructive dismissal is a form of termination of employment that occurs when an employer fundamentally unilaterally changes the terms of employment – and concluded Ford had. It ordered Ford to pay Ms. LaFleche significant wage loss damages (about $70,000 less about $3,750 already paid to her) and injury to dignity damages ($12,000). Notably, the award for wage loss damages included both actual wage losses of about 7.5 months wages (about $40,000) and loss of maternity and parental benefits during Ms. LaFleche’ next year long maternity leave (about $30,000).

Take-aways:

Moms / New Parents: Being told by your employer that they like your replacement better and you’ll have different duties on your return to work is discrimination.
Employers: absent reasons totally unrelated to the employee’s leave, you need to return employees to the same position they held before going on leave. Think carefully about what you say to employees on leave and about how they could take it.

Covid-19, Duty to Accommodate, Employer Policies, Employment Law, Human Rights, Privacy

Mandatory Vaccines for Regulated Health Care Practitioners

Updated: March 21, 2022

The BC Government has revised its plan to mandate vaccines for all regulated health care professionals. On March 10, 2022, the BC Public Health Officer announced that they will be moving forward with an “informed consent” system for some health care workers which may require disclosure of vaccination status to patients or clients. The new Order was issued on March 7, 2022 and requires regulated colleges to record each registrant’s vaccination status by March 31, 2022. Vaccination will still be required for health care workers practicing in certain settings.

The landscape of employment law continues to change as BC brings in new measures to manage the ongoing COVID-19 pandemic. This time, the change affects employees and employers working in regulated health care professions.

On February 9, 2022, the BC Public Health Officer expanded its vaccine mandate to include health care workers like dentists, chiropractors and other practitioners who are governed by a regulatory college. According to the new announcement, workers who get a first dose of the vaccine by March 24, 2022, and a second dose between 28 and 35 days after, may continue to work.

The BC Provincial Health Officer is finalizing the order in consultation with the health professional colleges and further details will be provided about how the vaccine mandate will be rolled out. As we’ve seen with other government mandates, workers who fail to get vaccinated by the imposed deadline may be terminated or placed on unpaid leave.

We have worked with many dentists and other regulated health care professionals to navigate the twists and turns of the COVID-19 pandemic, and this will be another challenge for employers to tackle. That is because government vaccine mandates do not eliminate all risk associated with terminating a worker who refuses a vaccine. There are a number of aspects to mandatory vaccines that must be handled carefully, including medical exemptions and the privacy of workers’ personal information. We may see health professional colleges taking a lead role in collecting information about vaccination status and investigating instances of non-compliance, however this does not replace an employer’s legal obligations. Here are the top three things that those working in a regulated health care profession should know:

1. The employer has a duty to accommodate in some circumstances.

In rolling out vaccine mandates, even if they are government ordered, employers still need to consider their responsibilities to workers under the Human Rights Code. Employers have a duty to accommodate workers who can demonstrate that they are unable to be vaccinated for reasons protected by the Human Rights Code (for example, disability or religion) to the point of undue hardship. In deciding whether it is undue hardship to continue employment of an unvaccinated worker, employers must consider the personal circumstances of the worker, and take into account the safety of the workplace and the requirements of both the government and their regulatory body.

2. An employee’s vaccine status is sensitive health information.

As healthcare practitioners know, personal health information must be handled with care. This includes vaccine status. The Personal Information Protection Act allows private sector organizations to collect, use, and disclose an employee’s personal information for limited purposes, if appropriate safeguards are in place. This means that employers must have a designated process for protecting the privacy of information about vaccine status which also complies with the requirements of their respective regulatory colleges. These privacy obligations extend to prospective employees who are applying for a job and are asked to disclose their vaccination status.

3. Mandatory vaccine policies should be drafted carefully.

Employers in a government-mandated industry should have a written vaccine policy that complies with all BC public health orders and is applied consistently. This policy should address what will happen when a worker has a qualifying exemption and is unable to be vaccinated. There should also be a clear process for how to collect, use and protect each employee’s private information.

A full list of health care professions affected by the order can be found here.

Covid-19, Employment Law, Wrongful Dismissal

Workplace investigations under the Canada Labour Code

Federally-regulated employers (which include banks, airlines, transportation and telecommunication companies amongst others) had to adjust to new ways of dealing with harassment, bullying, discrimination and workplace violence allegations as of January 1, 2021, with the enactment of the Workplace Harassment and Violence Prevention Regulations under the Canada Labour Code.

Federally-regulated employers have always had an obligation to investigate complaints, but there are some new and challenging requirements of the 2021 Regulation. These include:

1. Prescribed timelines.

These timelines are not too tight, but having to keep an eye on them is an adjustment. For instance, acknowledging receipt of the concerns within 7 days, starting the investigation within 45 days, keeping the parties informed of the status of the investigation with monthly updates, and completing the investigation within a year. The kicker is, the one year includes fully implementing any recommendations from an investigator’s report. Depending on how detailed those recommendations are, and the size of the workforce or the amount of people involved, one year may be a tight deadline.

2. Representation.

Non-unionized employers will have to remember to inform the parties that they may be represented through the investigation process, and not panic if the respondent brings legal counsel to the interview.

3. Expertise.

If you are investigating, you must be an expert. HR folks take note. The Regulations require you to be trained in investigative techniques, and that you know the law, both the Canada Labour Code and the Canadian Human Rights Act.

4. Appointment process.

Who gets to investigate is now subject to approval by the policy committee in your organization, or by the health and safety representative (referred to by the Regulation as the “Applicable Partner”). You can develop a list of investigator names and have that list approved by the Applicable Partner, so all your internal investigations people can continue to do their job as they were before. If you don’t create that list, the Regulations give the complainant and the respondent the prerogative of choosing who investigates, though they must agree on a name. From a practical perspective, this last option can be difficult to implement. These are two people who no longer see eye to eye, and it is unlikely they will agree on the issue of appointing an investigator. If the parties can’t agree, the government can provide an investigator from their own list of experts.

5. Conciliation.

You have to offer the parties an alternative to a formal investigation. The Regulation speaks of resolution via “conciliation”. The term is not defined by the Regulation, though is generally understood to mean a way of resolving a dispute with the assistance of a third party. Some employers are wondering what exactly is expected, and what the costs would be to hire external conciliators or train their own HR on conciliation techniques. When the allegations are related to sexual harassment, it is important to carefully consider how an offer of conciliation will made, what the format of that conciliation would be, and how it could be triggering or re-traumatizing for the complainant.

6. Former employees can bring complaints too.

They have 3 months to do so after the end of their employment. However, employers need to remember that their obligations to investigate concerns do not arise only under the Canada Labour Code. There is the possibility of liability under the Canadian Human Rights Act for not investigating, even if the employee is no longer with the organization, or has left longer than 3 months ago.

7. The content of the investigation report is now prescribed.

The report has to mention the circumstances in the workplace that contributed to the harassment and make recommendations on how to prevent similar occurrences (so investigators have to put their minds to systemic and workplace culture issues). Reports must not reveal the identity of the parties and a copy must be provided to both the complainant and the respondent, as well as to the Applicable Partner. Investigators need to be very cautious in their writing of the report. Sometimes the most careful of redactions can still reveal enough information that any of the recipients could piece together on who did what to whom and when and who testified against them. Describing titles, relationships or departments/locations in the report may reveal the identity of the parties. The employer must keep a copy of the report for a period of 10 years, which is longer than the regular 7-year period for business records, so make sure you make the necessary arrangements to avoid premature destruction.

8. Government reporting.

If you were already keeping solid records of all the concerns brought forward by employees, or your HR management system already provides you with case management and fulsome data in relation to concerns, congratulations. You may be halfway there. In addition to the already existing requirement to submit annual reports on all hazardous occurrences in the workplace, the government is now looking for the following things by March of each year:

the total number of occurrences,
the number of occurrences that were related to sexual harassment and violence and non-sexual harassment and violence,
the number of occurrences that resulted in the death of an employee,
if known, the number of occurrences that fell under each prohibited ground of discrimination set out in subsection 3(1) of the Canadian Human Rights Act,
the locations where the occurrences took place, specifying the total number of occurrences that took place in each location,
the types of professional relationships that existed between the complainant and respondent, specifying the total number for each type,
the means by which resolution processes were completed and, for each of those means, the number of occurrences involved, and
the average time, expressed in months, that it took to complete the resolution process for an occurrence.

9. Penalties for non-compliance.

HR and management in charge of workplace investigations need to pay close attention to the new requirements in the Regulation and adjust their investigations and related processes accordingly. The government has a non-compliance approach that always starts with a request to voluntarily comply. Continuous non- compliance will lead to monetary penalties and the publication of the employer’s name in certain circumstances.

Catalina Rodriguez has experience as a workplace investigator in the Federal sector.

Covid-19, Employment Law, Wrongful Dismissal

Responding to wrongful dismissal claims

Last week, the Globe and Mail reported that “scores of unvaccinated workers are filing wrongful dismissal claims against employers”. I have represented employees and employers at various stages of wrongful dismissals, from settlements to trials, and I have been getting many inquiries from employers asking how they should respond to wrongful dismissal claims. Below are my top 3 frequently asked questions and answers.

Q1: I received a letter from a former employee’s lawyer asking me to pay money. What should I do next?

Check to see when you need to respond by. If you only have a few days left, respond to the lawyer and tell them you are in the process of finding a lawyer and need more time – almost 99% of all lawyers will likely say “yes”. It is always easier, quicker, and cheaper for both parties to settle than to go to Court. By telling the lawyer you are getting legal advice, you are telling them that you are taking this seriously and that you want things to resolve as quickly, easily, and cheaply as possible. However, settlements require both sides to compromise and that’s why you need to speak to a lawyer who will tell you both the strengths and the weaknesses of your case and how much it will take for you to take your ex-employee to court versus settling.

Q2: I fired my employee for just cause because they refused to comply with our vaccination policy. Do I have a case?

We cannot give you a firm “yes” or “no” to this question. The reason why is because the question of whether an employer has just cause for termination is highly fact-dependent. Just cause for termination involves a two-step process where the employer must establish that the employee committed some form of misconduct, and that form of misconduct was serious enough to damage the employment relationship beyond repair.

To date, there has been no court decision anywhere in Canada that has ruled on whether non-compliance of a COVID-19 vaccination policy amounts to just cause for termination. We believe that once these cases start to arrive in court, they will all be decided differently, simply because the just cause test will apply differently across different industries, job positions, and work arrangements.

That being said, while just cause is not easy to prove, it is far from being impossible to prove. With the right set of facts, we believe that there is a good chance an employer can prove just cause for terminating an employee for their refusal to comply with a vaccination policy.

Q3: How should I decide whether to settle or go to trial?

I always tell my employer clients that a “win” in a wrongful dismissal is for their business to find the cheapest and least disruptive way possible to make the wrongful dismissal claim go away. For every employer, what this means will be different. Some things that come into consideration are:

How will my other employees whom I fired on similar grounds react if they learn that I settled?
How will my existing employees react if they learn that I settled?
How much time will I be taking away from making my business profitable if I decide to carry on with this lawsuit?
What are my odds of getting a less expensive result in court rather than settling right now?
If applicable, will pending lawsuits have any impact on my plans to sell the business?

These are challenging times and it is important for your business to make the right decisions and choices by consulting a lawyer on your next steps.

This blog is not intended to serve as legal advice, and only provides general information.

Every situation must be considered on its own facts. Need legal advice? Contact us by phone at 604 535-7063 or email [email protected].

Covid-19, Employer Policies, Employment Contract, Employment Law, Human Rights

New – BC employers must provide employees 5 days of paid sick leave

The BC Government has announced that starting January 1, 2022, all businesses with employees falling under the Employment Standards Act will be required to give their employees up to 5 days of paid sick leave each year. Paid sick leave is a significant change in the minimum employment standards in BC. We tackle some frequently asked questions below:

Q: When does this rule come into effect?

A: January 1, 2022

Q: Are all businesses impacted?

A: All businesses with employees falling under the BC Employment Standards Act are required to follow this rule.

There are some exceptions which could include:

unionized workplaces (which would have their own collective agreements);
independent contractors (who would have their own contracts);
certain professionals such as engineers, accountants, or lawyers (read more); and
federally-regulated businesses, for example those whose businesses are in the air transportation, banks or telecommunications industries (see list).

Q: Which employees are covered?

A: All employees falling under the Employment Standards Act, including full-time, part-time and casual workers.

Q: Are there any conditions these employees need to meet before they become eligible for the paid sick leave?

A: The employees need to have been employed for at least 90 calendar days. There is no requirement that they have worked a certain number of hours or days.

Q: Does the 5 days of paid sick include the 3 unpaid days of sick leave that was recently added to the Employment Standards Act as a pandemic response?

A: No, the 5 paid days are in addition to the 3 unpaid days, meaning that starting January 1, 2022, an employee could be at minimum entitled to 8 days off if they are sick, 5 paid and 3 unpaid.

Q: Is a doctor’s note required?

A: Employers are allowed to ask for “reasonably sufficient proof” and the employee must, as soon as practicable, provide such documentation to their employer. No further details have been provided about what “reasonably sufficient proof” might be.

Stay tuned! We expect there will be more guidance from the Government of British Columbia coming out in the following weeks and we will updating this post.

This blog is not intended to serve as legal advice, and only provides general information. Every situation must be considered on its own facts.

Need legal advice? Contact us by phone at 604 535-7063 or email [email protected].

Employment Law, Legal Advice

Equity, Stock Options, RSUs – The Basics

So, your employer granted you stock options, restricted share units (RSUs), phantom stock options or some other kind equity compensation. Great news, right? Or is it? Over the years, countless employees have confided in me that they aren’t exactly sure what they have received, what the value is, or how to realize the value. If this sounds familiar, read on!

Understand the Jargon

Equity compensation comes with a vocabulary all its own – vesting, exercise price, tranches, stock options, restricted shares, phantom stock, equity plan, to name a few such terms. What are vested options vs. unvested options? What is a stock option vs. stock? A restricted share unit vs. a share? These words and concepts can be the difference between a big dollar equity payout and zero. If you don’t know the jargon, it will be impossible to understand what you’ve been granted, so you need do some research.

Ask Questions

All employees are entitled to understand their compensation packages. Unfortunately, when it comes to the daunting landscape of equity compensation, it can be hard to know what questions to ask, or even whom to ask. And when equity compensation is part of a new hire package, many are understandably reluctant to ask for details. As a starting point, ask questions of the company’s human resources department or the recruiter who hired you. If they can’t help you, find someone who can. Always ask for copies of documents that are referenced in the compensation letter such as the underlying stock option or equity “plan”, and the “standard equity grant agreement.” The small print really can make all the difference.

What Happens if You Leave the Company?

Equity compensation is generally used as a retention tool, sometimes referred to as “golden handcuffs” to keep you with the company. This means that payouts may only happen if you stay for a long period of time, and have no value if you leave the company before a set date. For this reason, it’s important to know what happens to your equity compensation if you resign or your employment is terminated. For example, an ill-timed resignation may mean you lose your right to significant portions of your equity package. This underlines the importance of taking the time to ask questions at the outset to avoid nasty surprises down the road. If you are thinking of quitting or have been terminated, it’s a good idea to consult with an employment lawyer who has experience with equity compensation as there could be a lot at stake.

Employment Contract, Employment Law, Severance Package, Wrongful Dismissal

Severance for a Contractor? What, no way!

I hired this person to work in my business. They asked to be a contractor. They wanted the flexibility and the write offs. It didn’t work out and now they want severance. What?! I don’t owe them anything! … do I?

They hired me as a “contractor” but always treated me like an employee. Then they let me go with no notice. Can they really do that to me!?

These questions come up all the time and the lawyerly answer to both is “it depends.” Why? Because the law says that even if you have a “contractor agreement” with someone, you can owe them severance. So when is a “contractor” entitled to severance? We have to look beyond the agreement and examine the true nature of the relationship between the company and the “contractor” to answer this. It often boils down to whether the contractor was really running their own business or whether they were really working for the company. Key factors are:

Exclusivity – Was the contractor able to work elsewhere? Did they? How dependent were they on the income? The more exclusive and dependent the relationship, the more likely the person is to be entitled to severance.
Control – Did the employer control the contractor’s work and hours? The more control the company has over the contractor, the more likely the company owes the contractor severance.
Tools and Expenses – Who owned them? Who paid to repair them? Was the contractor reimbursed for expenses? Contractors normally supply their own tools and are not reimbursed for personal expenses –expenses that are not passed through to a client. True independent contractors are not entitled to severance.
Profits and losses – If the contractor completed the job quickly, did she get the profit? If it took too long, did she take the loss? If the contractor had little opportunity for profit or loss, they are more likely to be seen to be working for the company and owed severance.
Workers – Could the contractor hire its own workers to get the job done? If not, the contractor is more likely to be seen to be working for the company and owed severance.
Contract – What does it say? Did it reflect the true reality of the situation? We have even seen “contractor” agreements that refer to the contractor as an “employee” throughout!

Whether you are a company or a contractor, it is important to have a contract that reflects the true intentions and the reality of the situation. If you don’t:

as a company you can be surprised with liabilities such as having to pay severance to “contractors” and sanctions for not complying with Employment Standards, tax and other legislation; and
as a “contractor” you can be out of work on little or no notice with potential claims that you have to fight about instead of something fair upfront.

Whether you need a contact, or are involved in a claim, a knowledgeable employment lawyer can help.