Discussion Assignment 2
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HRM3103: Discussion Assignment 2 (Jun 7)
Employment Contracts and Common Law (5%)
Instructions
1.
Read the following scenario in the context of the Wilson Bros case study you read in Module 1.
2.
Consider the issues in this scenario as they relate to independent contractors and employees. Review the topic in your textbook if necessary.
3.
Read the questions below and answer all of the questions briefly. Also provide responses to at least two other students' postings.
4.
Go to the Graded Discussion Board before the due date, locate this topic thread, and enter your contribution to the discussion. Be sure to make references to material from the textbook, since part of your grade is for demonstrating your understanding of the information you read.
5.
You should avoid repeating anything anyone else has said, or saying “me too” (or equivalent). Your aim is to provide insight and demonstrate your knowledge of the topic. Limit each contribution to maximum 250 words. You can always come back and add more to the discussion later.
6.
Return often to read the responses to your contribution. Add more information and insights,
and participate politely and encouragingly in the conversation. Keep in mind that you’re being graded on your professionalism and your communication skills, as well as your information and insights. (See grading rubric below.)
7.
Contributions to the graded discussion must be posted by midnight on the due date.
8.
I am particularly interested in content, analysis, direct references to the readings ie (Filsinger, page 127) for example, constructive feedback by each student to at least two other student's postings supported by the readings, and the overall professionalism of the presentations.
THE JOHN SMITH CASE SCENARIO
John Smith, a well-respected Vice President Marketing with Wilson Bros., has to make a decision – and it’s not one he’s looking forward to. As Director of Human Resources, on orders from the Company owners, you have just notified John that the Company will be instituting written contracts of employment for all non-union employees, including management
. Since John is a non-
union employee, he will need to sign a written contract. John has twenty-five years of service
and an enviable employment record
, having moved up through the ranks over the years from his original position as a sales representative
. He’s now 50 years old
and enjoys his job
and his geographical location
in Ontario. He doesn’t really want to make a big fuss over this contract issue.
Should he sign? He has heard that some of the other VP’s in the Company are more than willing to sign the document immediately, while others are not so sure. He’s not sure what’s in the fine print – or whether he even needs to be concerned about the fine print. According to rumours, the contract includes a ‘non-compete’ clause, a confidentiality clause, and a termination clause which provides six months’ notice or pay in lieu of notice of termination.
Your job is to get these contracts signed as soon as possible. You have just called John and want him to review and sign the contract today.
Questions:
1.
Imagine that you are John. What would you do in his situation? Explain the legal reasons behind your decision.
As John, due to my skepticism and fear of change, I would request a copy of the new contract from HR and request time to review it with an independent legal counsel (Filsinger, p121, 123). The contract will be reviewed:
a)
To establish if the language is “clear and unambiguous” (Filsinger, p127) and clarify any ambiguous language; otherwise, I would see if the contra proferentem rule can benefit me (Filsinger, p128);
b)
To see if the terms are in line or greater than the Employment Standards Act (ESA),
2000
. As the termination
clause exceeds ESA, 2000, I would want to explore what the definition of “just cause” is, if there is a duty to mitigate
clause, what is the method of termination pay
, and what is the resignation notice
(Filsinger, p110-
113). As well as what is my entitlement to severance pay
as I have been working for 25 years (
Severance Pay
, 2021);
c)
To understand the restrictive covenants
, confidentiality and non-compete clauses, and their enforceability. Are they clear
and well-defined, what is the duration
and geographic scope
, and is it within the industry standard?
Due to my age, expertise and geography, I need to ensure it will not impede my ability to seek other employment (Filsinger, p114-116);
d)
To know my bargaining power
rights and considerations
so I may negotiate a more favourable contract (Filsinger, p123), such as an inclusion of a relocation
clause where the employer does not have a right to require relocation (Filsinger, p114).
Once informed, I can return to HR and initiate negotiations. 2.
What legal issues do you see in this situation? Explain the situation, the relevant laws or statutes, and the way a judge would likely rule if John took it to court.
Since the company is now
instituting written contracts, we may assume that either John’s initial contract was oral since the Wilson brothers’ bonded handshake may have extended to
employment (Wilson Brothers Limited Case Study, para 2) or it has not been updated since he was hired. a)
In the case of oral contract
, the judge may not favour with John as the Ontario Statute of Frauds requires written contracts of service of over one year. As John has worked for 25 years, there is a risk that the judge will rule that there is no employment contract between John and Wilson Brother Limited (similar to Ross v Christian & Timbers Inc.) and therefore, John is not entitled to any compensation, including termination pay due to constructive dismissal or severance pay (Filsinger, p104; Severance Pay
, 2021).
b)
In the case of an outdated contract, John can plead obsolescence
and the court may use implied terms
(p105) to have the Company provide reasonable termination pay and other damages beyond the outdated and new contracts, which can be more costly (Filsinger, p124-125, 105).
Furthermore, since the company instituted the new contract without consent, John can:
a)
Invoke lack of consideration
if the company disregards John’s considerations and therefore, making the new contract or part of its terms unenforceable (Filsinger, p122-123).
b)
Invoke lack of bargaining power
if the contract is unconscionable where the terms are unenforceable (Filsinger, p123).
In both cases, the court may deem this as a constructive dismissal and/or issue the company with reasonable termination pay, severance pay and other damages.
3.
As Director of Human Resources, you’re dealing with a contract written by senior managers and owners, who have their eye on the bottom line and deadlines, not necessarily on legal issues. How would you handle this situation professionally?
I would have a meeting with them and provide information where I draw direct lines between their written contracts based on bottom-line/deadlines and each term’s legal implication and potential cost to the company.
I would further educate them on the ESA, 2000 and other employment common laws. The benefits of a well-written contract will reduce misunderstandings, handle contentious issues,
remove uncertainty and avoid implied terms by the courts (Filsinger, p104-105), which would mitigate future risk to the company. I will draw their attention to the following:
Ensure that the contract is “clear and unambiguous”
(Filsinger, p127) to avoid the contra proferentem rule that would be disadvantageous to the company and includes the entire agreement clause
that removes liability to previous oral or written contracts (Filsinger, p127-128, 120);
The contract must be in line with or exceed ESA, 2000
(Filsinger, p128);
The contracts are not standardized but rather customized
to each employee (Filsinger, p106);
Confirm the termination clause
is clear with reasonable notice or pay in lieu, including clauses of a duty to mitigate, define a termination on “just cause”, and establish a method of termination pay. Further to this, reasonable notice of resignation must be included, as well as, a severance pay
clause. These should be in line with or exceed the ESA, 2000 and addressed to the employee at the time of signing. (Filsinger, p110-113, 123; Severance Pay
, 2021);
Ensure the restrictive covenants
, confidentiality and non-compete clauses, show they are necessary to protect the business interests, cover a reasonable duration and geographic scope based on industry standards, and a non-solicitation clause is not enough to protect the business interests (Filsinger, p116);
Allow for the employee time to seek independent legal counsel to make it difficult to be challenged in court in the future (Filsinger, p121, 123);
Promote equal bargaining power
between employee and employer to mitigate possible issues of excessive negotiation powers by the employer (Filsinger, p123, 128);
Provide considerations
for the employee if they want to edit or add terms (Filsinger, p122-123, 128).
If John refuses to sign, then:
My option would be to meet with him to discuss concerns and negotiate fair and reasonable terms that meet both parties needs, thus including his considerations and ensuring an equal bargaining power. I would encourage John to seek independent legal counsel as well;
The company’s options are to provide John’s considerations or alternative considerations, such as a signing bonus. Otherwise, should the company not wish to consider John’s needs, they will need to provide a termination based on constructive
dismissal.
If all the VPs and managers refuse to sign, then the company may be forced to abandon the
new contracts and continue as is and ensure they have enough funds and great lawyers for future court cases. Alternatively, to ensure continued operations, the company will be forced to engage in a fair bargaining process and allow for their considerations. The new contract should be attractive enough for all VPs and managers to sign and it should be customized to their individual needs.
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4.
What option(s) do you have if John refuses to sign? What options does the Company have?
Consider what changes if all the VPs and managers refuse to sign, rather than just John.
If John refuses to sign, then:
My option would be to meet with him to discuss concerns and negotiate fair and reasonable terms that meet both parties needs, thus including his considerations and ensuring an equal bargaining power. I would encourage John to seek independent legal counsel as well;
The company’s options are to provide John’s considerations or alternative considerations, such as a signing bonus. Otherwise, should the company not wish to consider John’s needs, they will need to provide a termination based on constructive
dismissal.
If all the VPs and managers refuse to sign, then:
The company may be forced to abandon the new contracts and continue as is and ensure they have enough funds and great lawyers for future court cases.
Alternatively, if the written contracts are required, the company will be forced to engage in a fair bargaining process and allow for their considerations in order to ensure continued operations as the company cannot terminate all their senior-
level personnel.
The new contracts should be attractive enough for all VPs and managers to sign and it should be customized to their individual needs.
Filsinger, K. (2019). Employment law for business and human resources professional (4
th
ed.). Emond Montgomery Publications Limited.
Employment Standards Act. (2021, June 4). Severance Pay
. https://www.ontario.ca/document/your-
guide-employment-standards-act-0/severance-pay
P106: how formal should a written contract be
? when a job is a senior position the parties may want a written contract that is formal and comprehensive it may be important to address confidentiality non solicitation and non competition obligations
P110: termination
. Requirement to meet or exceed the statutory minimum requirements. Upon termination of employment. In addition, the termination clause should be clearly expressed because clear language is required to rebute the common law presumption that an employee is entitled to reasonable notice. Furthermore, the termination clause should be specifically brought to the employees attention, and both parties should sign off on it before the employment relationship commences.
P112-3: the duty to mitigate
refers to the obligation placed on a dismissed employee to look for a job that is comparable to the one from which he has been dismissed during the common law reasonable notice. If the dismissed employee is successful earnings from the new job or will reduce any wrongful dismissed charges owed by the employer. An employer must make sure that its contractual termination provisions expressly establish a duty to mitigate. This applies whether the employment contract is for a fixed term or an indefinite term. An employer may want to include a definition of just cause to establish the conduct that would justify dismissal without notice or pay in lieu of notice. The termination clause may also set out the method by which termination pay is to be paid. For example by lump sum, salary continuance, or a combination of the two. Finally, the parties may want to address the issue of employees obligation to provide advance notice of resignation.
In the termination clause, it should include. One reasonable notice or pay in lieu. Two duty to mitigate. Three define just cause. For a method of termination pay. And five notice of resignation from employee.
P113: probationary period
. The employer may want include a probationary period clause That states
there is no probationary period due to continuation of employment.
P114-6: restrictive covenants
. Protect an employers business interests by restricting what an employee can do during and after employment with regards to such matters as confidential information and customer lists. Three types of restrictive covenants. One non disclosure clause. Two non solicitation clause. Three non competition clause.
The employer must show that the non competition clause is necessary to protect the employers legitimate business interests, The non competition clause covers a reasonable length of time and geographic area and the prohibited post employment activities are not too broad, and the non solicitation clause would not adequately protect the employers. Legitimate interests in the circumstances. Ensure they are industry norm
P119: potential power imbalance
between employees and employers. It reasoned that employers should not be allowed to negotiate overly broad non competition clauses and then rely on the courts. To read them down to the broader scope that it considers reasonable. An ambiguous covenant is by definition unreasonable and unenforceable.
Given the longstanding reluctance of courts to enforce non competition clauses in employment contracts, it makes sense, wherever feasible for employers to also use non solicitation clauses. Not only are non solicitation clauses more likely to be enforced. But they also enable former employees to look for work in the same industry as part of mitigating their losses.
P120: entire agreement clause
. This clause states that signs contract constitutes the entire agreement between the parties. Previous conversations, negotiations, and promises that may have been made during the hiring process are not binding on either party.
P121: independent legal advice
. This clause states that the employee has had the opportunity to seek independent legal advice before in signing the contract. An employee who has had an opportunity to obtain independent legal advice will find it difficult to challenge the contract on the basis that he was unaware of its term.
P123: lack of consideration
. Problems can arise where an employee begins working before the contract is finalised. The employee may allege that the final contract signed after work began. Is unenforceable because no new consideration was provided in exchange for the new terms. Once the
employee begins work, it is too late to ask them to sign a contract containing you terms that are disadvantage to her, unless the employer is provided prepared to provide some new consideration (e.g. signing bonus).
P123: inequality of bargaining power
. Written employment contracts can be challenged on the basis
of the parties. Alleged inequality of bargaining power at the time that the contract was negotiated. To minimise the risk of this problem, the employer can one ensure that the terms of the contract represents. A reasonable balance between the interests of both parties, to provide the candidate with a written copy of the proposed contract and give them time to read it and obtain independent legal advice before signing, three include the provision in the contract stating that the candidate. Had the opportunity to obtain independent legal advice before signing, for draw the candidates attention to key terms such as non competition, non solicitation, and termination notice clauses and have the candidate initial them. P124-5: Obsolescence
. A contract may be challenged on the ground of obsolescence, where its terms no longer reflect the realities of an employee's position within the organisation. To ensure old contracts do not become invalid, the party should update the employment agreement wherever there is a promotion or other significant change in duties. Similarly, the employment contract could
include a provision that allows it to be reviewed and updated periodically. The termination clause usually states that the employee is entitled to a certain number of weeks notice for each completed year of service with a certain maximum and minimum total notice. This type of clause protects against obsolete sense in many cases. For greater certainty, the clause could also state that it applies
despite any changes in duties that arise over the life of the contract.
P127: to safeguard against changes to the termination requirements in the ESA. The termination clause could state that the employee is entitled to the greater of the entitlements specified in the contract and the entitlements required by the act. Similarly, there could be. A saving provision that explicitly states that if the clause currently or in the future falls below the requirements of the legislation, it should be interpreted so as to comply with those obligations. Another approach is for the parties to revisit employment contracts at regular intervals to ensure that they still meet or exceed statutory requirements.
P127: the employment contract, employers should use clear and unambiguous terms. If a court finds
that the terms of a contract can bear two possible interpretations, it may apply a rule called Contra proferentem. Under the Contra Preferentem rule. Ambiguous language may be interpreted against the party who drafted the agreement because that is the party who could have avoided the problem
by being clearer.
P128: Employers should keep the following tips in mind when drafting an employment contract to reduce the risk that a contract or a term of a contract will be ruled unenforceable by a court.
1.
use clear, straight forward language. The Contra proferentem rule may result in ambiguous language being interpreted in favour of the other party. 2.
Be fair when negotiating terms. Evidence of unfairness or undue influence in negotiating terms may render the contract void.
3.
Give the other party time to read, Understand, and seek independent legal advice against about the contract before signing it.
4.
Meet or exceed the minimum statutory standards.
5.
Bring critical terms to the other parties attention.
6.
Provide additional consideration if the employee wants a new term included in the contract after it is signed or after employment begins.
7.
Customise contracts rather than use a standard form.
P50: ohrc discrimination on age.
ESA, 2000 Severance pay
: https://www.ontario.ca/document/your-guide-employment-standards-act-0/
severance-pay
An employee qualifies for severance pay if their employment is severed and they have worked for the employer for five or more years.
Amount of severance pay: To calculate the amount of severance pay an employee is entitled to receive, multiply the employee's regular wages for a regular work week by the sum of: the number of completed years of employment; and the number of completed months of employment divided by 12 for a year that is not completed. The maximum amount of severance pay required to be paid under the ESA is 26 weeks. When to pay severance pay: An employee must receive severance pay either seven days after the employee's employment is severed or on what would have been the employee's next regular pay day, whichever is later. Exemptions from severance pay.
Termination
: https://www.ontario.ca/document/your-guide-employment-standards-act-0/
termination-employment
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Under the Employment Standards Act, 2000 (ESA) a person's employment is terminated if the employer: dismisses or stops employing an employee, including where an employee is no longer employed due to the bankruptcy or insolvency of the employer; "constructively" dismisses an employee and the employee resigns, in response, within a reasonable time; and lays an employee off
for a period that is longer than a "temporary layoff".
A constructive dismissal may occur when an employer makes a significant change to a fundamental term or condition of an employee's employment without the employee's actual or implied consent. For example, an employee may be constructively dismissed if the employer makes changes to the employee's terms and conditions of employment that result in a significant reduction in salary or a significant negative change in such things as the employee's work location, hours of work, authority, or position.
According to ESA, amount of termination notice is 8 weeks if the employee is employed for 8years or
more.
Professor notes:
This Discussion was handled quite well overall by students. A couple of points come to mind. First, John needs time. He would ask therefore that he have the opportunity to review the contract with appropriate legal counsel. When he does that he will realize that he enjoys more privileges from his implied contract that has been in place for twenty five years then the explicit one presented to him to sign. This is particularly true in the case of an unjust dismissal because with an excellent work record combined with his service, level in the organization, and his age, John could obtain up to two years notice or pay in lieu of notice (based on 2 weeks to 1 month per year of service to a maximum of 24 months), whereas the new contract will provide for only 6 months. In addition he has the right
to join any company he wishes currently, which a non-compete clause, and to a lesser extent a confidentiality clause, in the new agreement would exclude. Furthermore the company has not offered any form of consideration required to have the contract validated. As DofHR you are in a tough position as John is a key member of the organization. The company is a marketing/sales driven
firm and he is the key executive driving that portion of the business. So, you could recommend the company either make significant changes to the employment contract draft, start the process of employment contracts with newly hired executives and managers only, or scrap the entire idea. As with all case scenarios in this course this is based on a real scenario. John ended up refusing to sign and because of his status in the organization there were no significant ramifications. Based on his lead, no other executive or manager signed either. In the end because the original process was so flawed the idea of formal explicit contracts was put on hold.