Incentive Plans In Alberta Can Still Limit Entitlements to “Actively Employed” Employees

Benjamin AberantShana Wolch

The recent Queen’s Bench decision Styles v. AIMC was widely discussed given that it found an employee was entitled to LTIP awards vesting after termination despite clear contractual language requiring the employee to be “actively employed” on the LTIP payout date.  The Trial Judge found that dismissing an employee without allowing his LTIP grants to vest was “bad faith” in contractual relations (as an unprecedented extension of the principles established by the Supreme Court of Canada in Bhasin v Hrynew).

The Alberta Court of Appeal decisively overturned this decision and the reasoning behind it stating:

[65]       The discussion about “a common law duty of reasonable exercise of discretionary contractual powers” turned out to be an unfortunate distraction. The trial judge found at para. 115 that there was no bad faith in the respondent’s termination, and he produced no evidence it was related to his bonuses. The terms of the Long Term Incentive Plan are clear, and do not involve any exercise of discretion. A clear feature of the Long Term Incentive Plan is that bonuses do not vest for four years. It must have been obvious to the respondent that unless his employment with the appellant lasted for at least four years he would never receive any bonus under this Plan. Specifically, if he was terminated without cause within four years, any expectation of a bonus would be lost. Those are the terms of employment to which the respondent agreed. If he wished to earn some bonuses under the Plan in the eventuality that he was terminated without cause within four years, it was incumbent for him to negotiate such a provision. Not having done so, he cannot now ask the court to retrospectively include such a term on the basis that such a term might be “reasonable” or “fair”…

In our view, the Alberta Court of Appeal was correct in allowing the employer’s appeal.  Alberta employers should be able to lawfully limit entitlements under long term incentive compensation plans to employees who continue to be employed up until the expected payout date.  As we have previously discussed on this blog, Alberta employers can also limit severance entitlements generally to the minimum entitlements under the Alberta Employment Standards Code.  The key in each case is to have contracts in place that contain clear wording, keeping in mind that these types of clauses are very technical and need to be drafted with precision, to avoid being declared invalid or unintentionally violating the minimum standards of the Code. Long story short, this case is and can be a win for Alberta employers.

The Ontario Court Of Appeal Thinks That Fraud Still Constitutes Just Cause

Benjamin AberantShana Wolch

Reversing a lower court decision, in Fernandes v. Peel Educational & Tutorial Services Limited (“Fernandes”), the Ontario Court of Appeal ruled that a school had just cause to fire a teacher who had “committed acts of misconduct, including the creation of false marks and inaccurate grades and then lying to cover up the improprieties”.

This case confirms what many employment lawyers (including the authors) already thought: that serious and wilful misconduct fundamentally and directly inconsistent with an employee’s obligation to his or her employer ought to constitute just cause, especially when (a) it causes the employer harm, and (b) the employee was dishonest when confronted with the allegations.

The decision is also a good reminder that in many cases fraud will constitute just cause. It also provides some sound lessons to Alberta employers who often forget the following:

  • Fraud, or similar type allegations like theft, will usually need to be proven to a high standard.  Therefore, the standard of proof will be higher than the usual balance of probabilities but likely lower than the criminal standard of beyond a reasonable doubt;
  • These types of allegations are in many cases very difficult to investigate and prove because they involve complicated allegations beyond the understanding of the average person. Allegations of financial fraud may require an employer to engage outside and neutral experts, such as accountants;
  • Allegations of misconduct, fraud or otherwise, generally require an employer to conduct an investigation prior to executing a termination. Fulsome investigations require (a) the employee suspected of misconduct to be interviewed (sometimes several times) and confronted with the allegations, (b) witnesses to be interviewed, and (c) evidence, such as emails and video surveillance, to be reviewed and assessed;
  • While it is often prudent to have an investigation done internally by a Manager or Human Resource Professional, in many cases an outside investigator is a much better option.  Examples of when an external investigator might be preferred include when the allegations are complicated, when an employer’s reputation is at risk, or when the internal investigator could be seen to be biased. Remember that the investigator may ultimately be required to testify at trial about the investigation, so consideration should be given to whether the internal investigator would make a good witness.
  • If an investigator does conclude that serious and wilful fraud has occurred, an employer will usually terminate the employee for just cause. However, there is still no guarantee that a trial judge will agree.  In Fernandes, the Court sided with the employee and awarded severance, and it took a costly appeal for the Employer to finally be vindicated.  If a sound investigation is conducted, the court might disagree with the cause allegation however the damages will usually be limited to a typical wrongful dismissal case as opposed to being increased to address bad faith in the investigation.

If you have any questions please contact Ben Aberant or Shana Wolch

Doing Business in Canada: Read the latest updates to our popular guide

McT_DBiC_Cover_3D_SEPT2016

McCarthy Tétrault’s Doing Business in Canada provides a user-friendly overview of central aspects of the Canadian political and legal systems that are most likely to affect new and established business in Canada. The newest edition reflects legislative changes including:

  • Changes to the Competition Act and Investment Act Canada;
  • and an updated Mergers and Acquisitions chapter including new rules on takeover bids in Canada.

General guidance is included throughout the publication on a broad range of discussions. We also recommend that you seek the advice of one of our lawyers for any specific legal aspects of your proposed investment or activity.

Download the updated guide

I Take it Back: Retracting a Resignation

Dylan Snowdon

What should you do if an employee asks to rescind his or her resignation?

If you really love that employee, you say “Great! Welcome back.” But if this isn’t your favourite employee, you may have an obligation to undo the resignation anyway.  In order to decide whether or not to allow them to withdraw the resignation, there are a few factors that you should consider.

First, was the resignation valid? An employee who quits in the heat of the moment or while under duress or emotional turmoil should not be held to their resignation.  Similarly, expressing dissatisfaction and raising the idea of resigning, or offering to resign if asked is not, on its own, sufficient to create a valid resignation. An employee will likely be allowed to revoke the offer to resign even after it is accepted, especially if it was made in the heat of the moment.

The timing of the withdrawal is also important. If an employee resigns in the heat of the moment and attempts to rescind in a matter of hours or days, the courts are more likely to conclude that the resignation was not valid.  The more time between the resignation and withdrawal, the more likely it is that the courts will allow the withdrawal.

In order to determine if the resignation was valid, the courts use the test: “Given all the circumstances and context in which the resignation took place, would a reasonable person have objectively thought that the employee meant to resign?” That’s lawyer-speak for “Did the employee mean it?”  So, for a resignation to be valid, there must be a clear statement of resignation from the employee, preferably in writing; or conduct that clearly shows an intent to resign such as a verbal statement followed by removing personal items from the workplace.

Beyond ensuring a clear resignation, we recommend issuing a written acceptance of the resignation. Employers who scheduled a meeting the next day, or followed up with a phone call to clarify the resignation are generally found not to have accepted a resignation, thus leaving the door open for a retraction.  Before issuing an acceptance, employers must also consider other factors that might be influencing the employee such as a potential mental health issue or family situation causing unusual stress.  These factors should raise concerns that perhaps the employee doesn’t intend to resign but requires some additional assistance such as a leave of absence or referral to the company’s Employee Assistance Provider.

In some cases, an employee may issue an ultimatum to their employer, in which he or she states that if their conditions are not met, then the employee will resign. If the employee does not rescind the ultimatum after a cooling-off period, likely several weeks, employers have successfully defended their issuance of a written acceptance of resignation.  While taking such action would contain the risk of a wrongful dismissal claim, some courts have found the resignation valid where the ultimatum was clear and the employer had given the employee sufficient time to rescind.

If the offer of resignation is not valid, an employer must allow an employee to rescind if the request to retract is brought quickly, even if the offer of resignation has been accepted. In some cases, an employer could refuse to allow an employee to rescind if  they can prove that they have relied on the resignation to the employer’s detriment.  For example, if an employer had to hire another employee to fill the role, they would have expended both time for hiring and money to pay a replacement because of the resignation of the employee, demonstrating a detrimental reliance.

In summary, give upset employees time to cool down, request employee resignations be submitted in writing, and respond with a written acceptance if there are no suspected factors improperly influencing the employee’s decision. If an employee seeks to rescind the resignation, look at how long it has been since the resignation was issued and what steps have been taken in reliance on the resignation.  If there is no down-side in allowing the employee to continue employment, then permitting the retraction is likely the best course of action.

An Agreement In Principle: Canada Pension Plan Expansion

Benjamin Aberant

Click here to view the post from our Ontario colleagues on the recent agreement in principle between 8 of the 10 provincial finance ministers and the federal finance minister to expand the Canada Pension Plan.  The post includes steps that Alberta employers could take to anticipate the expected changes.

 

At Least A Few Days After And Never At The Termination Meeting

Benjamin AberantShana Wolch

A recent case out of British Columbia provides a timely reminder of a best practice for Alberta employers. In Saliken v Alpine Aerotech Limited Partnership, 2016 BCSC 832, a relatively short service employee was dismissed, allegedly for just cause.

On the termination date the employee was told that he was fired and called to an office. He was then presented with the termination documents, which included a release, and pressured to sign that day.  He signed after about 15 minutes.  The Court found that while the employee “read” the termination documents, he did not understand them.  Further, it was found that the employee could not have understood the consequences of the release.  The Court stated:

…The atmosphere during the termination meeting was tense and awkward. The plaintiff was in shock he was being terminated…To hold the plaintiff to the termination documents in the circumstances would be unconscionable. Neither Mr. Pink nor Mr. Davis explained any of the termination documents to the plaintiff…It was a grossly unfair and improvident transaction. The plaintiff received no legal or other suitable advice. Ultimately, the circumstances and resulting stress of the termination resulted in an imbalance in bargaining power and the defendant knowingly took advantage of the plaintiff’s vulnerability to its advantage…The offer contained in the termination documents was presented in a way that was directed to getting the plaintiff to accept, and in a manner set to take advantage of the plaintiff’s vulnerability.

This case is a good reminder of a classic lesson: never let an employee sign the release at the termination meeting.  Never ever.  While it can be tempting, just don’t do it.  An employer could be dealing with an employee who is eager to sign a very generous package.  Perhaps the employee knows that he/she will find new work soon, making the package even more generous.  The employee may also be sophisticated and make comments that quite obviously show that he/she understands the situation and the fact that he/she will be releasing all of his/her legal rights.

Don’t be tempted. Our usual advice is to give the employee between 1-2 weeks to consider the severance package and, barring exceptional circumstances, not accept the returned release for at least a few days after the termination meeting.  While the above case had some exceptional facts, it shows that accepting it earlier creates a risk that it could be challenged on the basis of unconscionability.  This scenario may leave you in a costly legal fight that could have been avoided with a little more patience and good practice.

Yes Your Employees May Be Legally Entitled To Time Off Work To Watch Their Kids, Even If They Give You No Advance Notice

Benjamin AberantShana Wolch

We recently came across this new Ontario human rights decision in the course of advising an Alberta employer on an employee child care issue. There are relatively few Alberta decisions that speak to this issue, so Alberta employers often have to look for guidance from the Ontario, British Columbia, and Federal tribunals and courts, when trying to navigate this difficult area of law.

In Miraka v A.C.D. Wholesale Meats Ltd., a wholesale meat distributor made the poor choice of terminating a delivery truck driver’s employment after he missed 3 consecutive days of work.  2 of those days were missed because he had to take care of his two children after his wife, who normally watched them, became sick.  The Tribunal determined that the termination was unlawful and discriminatory.

It stated that “[i]n Canada (Attorney General) v. Johnstone, 2014 FCA 110 (CanLII), the Federal Court of Appeal clarified that the sorts of parental obligations that fall within the protected ground of “family status” under human rights legislation are substantive obligations that engage a parent’s legal responsibility to a child”.

Dealing with the employer’s argument that the Johnstone decision meant that the employee was obligated to arrange alternate child care , the Tribunal stated that it was “not convinced that the requirement to demonstrate reasonable efforts to make alternative childcare arrangements applies in cases like this, where there is only an infrequent, sporadic or unexpected need to miss work to take care of one’s children…Rather, what comes into play in cases like this one is the overarching principle that a “bona fide childcare problem” has resulted in an employee being unable to meet his or her work obligations….this is a highly fact-specific inquiry, and each case must be reviewed on an individual basis in regard to all of the circumstances.”

The Tribunal also did not accept the employer’s argument that the employee was obliged to try to hire, on short notice, a stranger from “Craigslist” or “Kijiji” to care for his young children, before the employee would fall within the Human Rights Code’s protections. It found that doing so may have been inconsistent with the employee’s legal obligations to ensure the safety and well-being of his children.

Alberta employers should keep this decision in mind when responding to an employee’s last minute request or demand for time off work to deal with childcare obligations, and even other family needs. Arguably, and if the right facts exist, employees could be protected under the Alberta Human Rights Act even if they have made no efforts to seek out alternate child care.  The result is that they could be entitled to the short period of time off, in most cases despite the negative impact that their absence will have on the employer’s operations.

More Bad News For Fixed Term Contracts

Benjamin AberantShana Wolch

A few months ago we commented on a case where a fixed term contract caused an employer significant liability because it did not allow for early termination prior to the end of the fixed term.  The Ontario Court of Appeal recently released a decision, Howard v. Benson Group Inc. (“Howard”), which provides a further warning about the use of fixed term contracts.

In Howard, the employer used a 5 year fixed term contract and terminated the employee, without cause, 23 months into the fixed term. The employment agreement contained the following clause that the employer sought to rely on: “Employment may be terminated at any time by the Employer and any amounts paid to the Employee shall be in accordance with the Employment Standards Act of Ontario.”

This clause was found to be ambiguous and unenforceable, meaning that the employee was entitled to the value of the entire fixed term. Interestingly, the Court of Appeal overruled the Trial Judge and also found that the employee was not obligated to search for new work or otherwise mitigate his damages, stating that “[i]n the absence of an enforceable contractual provision stipulating a fixed term of notice, or any other provision to the contrary, a fixed term employment contract obligates an employer to pay an employee to the end of the term, and that obligation will not be subject to mitigation.”

This case is a good reminder for Alberta employers about the use of fixed term contracts (also see Michela v. St. Thomas of Villanova Catholic School 2015 ONCA 801 where the teachers on fixed term contracts were awarded 12 months’ reasonable notice). They may sometimes be preferred over indefinite term contracts in certain situations, for example where an employee is hired for a short and definite time period or to complete a specific project.  Likewise, they can be used effectively, but it is crucial that they contain a properly drafted clause that allows for early termination on a without cause basis.  Without this clause, the employer can expect to be on the hook for the entire remainder of the contract, possibly with no duty for the employee to mitigate his or her damages.

How Much Should Big Brother Monitor (And Other BYOD Considerations)

Benjamin AberantShana Wolch

Given the popularity and prevalence of mobile devices such as smart phones and tablets in today’s world, it is no surprise that Bring Your Own Device (“BYOD”) programs have become an increasingly common arrangement for organizations. BYOD programs allow employees to use their own mobile devices for both personal and business purposes, blurring the traditional line between work and play. A recent report indicates that more than 75% of Canadian businesses support employee-purchased smartphones and tablets in the workplace.

Properly implemented BYOD programs are appealing to organizations for many reasons. First, they allow them to save substantially on equipment costs because the phones are purchased and owned by the employees. Second, they allow the organization to stay in touch with the employees at almost all times, because the employees are generally carrying the device with them even after work. Third, employees may well like the arrangement as it is much more convenient to carry one device than two (a personal device and a business one). Therefore, the program can result in lower cost, higher productivity and greater employee satisfaction, a win-win situation for both the organization and employees – you would think.

While BYOD programs may seem attractive to organizations, there are significant privacy, security and even overtime risks involved that must be carefully considered, such as:

  • With employees bringing in different devices, controlling the access and capabilities of such devices or ensuring the devices have adequate protection against malicious activities can be difficult.
  • Too much monitoring can infringe on employee privacy but not having sufficient monitoring to ensure organizational information is secure can have dire consequences.
  • Organizations often have confidential company information on their systems such as information on new products, new ventures and new initiatives. Any security risk leading to leakage of such information may severely compromise the competitive advantage of the organization.
  • Organizational systems may also contain private personal information of clients, which organizations are obligated to keep confidential. Having such information divulged to outsiders even if unintentionally, can result in personal information protection or privacy related lawsuits.
  • Finally, with employees being available 24/7, they might decide to try to claim overtime for the time that they are allegedly working outside of the workplace. The cost-savings of BYOD might not be so cheap after all. As such, any introduction of such BYOD programs must be properly managed, with due consideration given to both the cost-benefits and potential risks involved.

From a privacy perspective, the Federal, Alberta and British Columbia privacy commissioners have compiled a set of guidelines to address the privacy and security risks for organizations considering a BYOD arrangement, a full copy of which can be found here. The following highlights some of the key points of the new guidelines on BYOD:

1.               Privacy Impact Assessment (“PIA”) and Threat Risk Assessment (“TRA”)

As different organizations have different types and volumes of sensitive or private information, PIA is needed to identify risks related to the collection, use, storage, retention, and disclosure of such information, while TRA addresses the specific organizational risks involved in adopting a BYOD program. Such assessments help to determine if and how the program should be implemented.

2.               Developing and Implementing a BYOD Policy

A specific BYOD policy should be developed, addressing issues such as user responsibilities, acceptable company monitoring practices, application management, security requirements and access requests, as well as necessary restrictions regarding which devices, systems and storage services are authorized, who can be on the program and what information can be accessed through it. The policy must be clearly communicated in order for it to be understood and enforced. Proper training to employees on managing various types of risks can also aid in the implementation of a good BYOD policy.

3.               Mitigating organizational risks

Organizational information should be stored in a centralized location within the organization and not on individual personal devices. Specific software, such as MDM software, can be installed to manage connections of the device to the organizational server. An agreement on the device administration responsibilities should be signed by both the employee and the organization. Another way of reducing risk is containerization, which involves creating two compartments on the device, one for personal purposes and one for business purposes. Containerization enables the organization to effectively manage the business compartment.

4.               Addressing software vulnerabilities

Encryptions and patch updates can prevent malicious cyber activities that can adversely affect the organization. Responsibilities must be clearly established in the policy and agreed to by the BYOD users. A list of approved apps should also be developed, with an accompanying policy and procedure for their installation and management, to prevent misconfigured or improper apps from being used. Effective authentication can be implemented at the device, container and/or user levels.

5.               Incident Management

A clear incident management process should be available so that when something goes wrong, immediate remedial actions can be taken to protect organizational information, such as remote removal of information or information access on the device. To do so effectively, a good inventory management system maintaining the current authorized devices and apps is essential.

Implications for businesses

Organizations need to be cognizant of information security when using BYOD programs, not only because of potential financial and reputation losses due to leakages of sensitive company information, but also because they have the legal responsibility to keep personal information confidential. BYOD is not for all organizations as it depends on the risks involved as well as the cost implications. Technology is forever changing and BYOD policies and procedures need to keep up with latest developments. Effective development and management of BYOD programs requires devoted resources and ongoing commitment at all levels of an organization. An appropriate balance needs to be struck to ensure that measures to protect organizational information are not unnecessarily infringing on employee privacy or excessively compromising usability.

In developing any BYOD policies, organizations ought to pay particular attention to this set of guidelines by the privacy commissioners. When there are privacy complaints or litigation related to the BYOD programs, these guidelines may be used to determine if proper measures have been adopted by the organization to avoid security risks and privacy breaches.

If you have any questions please contact Ben Aberant or Shana Wolch.

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