Recently, Zubas Flett Lawyer, Ted Flett, spoke with Jeffrey Smith of Canadian HR Reporter. The opinion piece, which discussed the enforceability of termination clauses can be read here or below.
Hasty employment agreement unenforceable in Ontario case
Beauty salon on the hook for 10 months’ salary in lieu of notice
“Make sure termination clauses are enforceable, the employee is offered consideration if they’re an existing employee and sufficient time is provided for the employee to review the agreement — and confirm that they had the opportunity to seek independent legal advice.”
These are fundamental elements of a new employment agreement for existing employees, says Ted Flett, an employment lawyer at Zubas Flett Law in Toronto.
However, one Ontario employer was a little sloppy with these elements, resulting in a termination clause being completely scrapped and putting the employer on the hook for paying a fired worker 10 months’ salary in lieu of notice.
New employment agreement
The 72-year-old worker was a part-time esthetician at Beauty Express Canada, a salon inside a department store in Toronto. She originally started working at that location in 1999 for another salon until 2013, when the salon went bankrupt. Beauty Express started operating at that location and the company immediately hired the existing staff, including the worker in the same role.
The worker initially worked full-time, but her hours were gradually reduced. She told a manager that she wasn’t happy about it, but she didn’t pursue it further.
In February 2018, the manager presented the worker with a policies and agreements document and told her to sign it before her shift was over. The document was several pages long and the worker, whose second language was English, didn’t have a chance to read all of it because she was busy with customers.
The new agreement contained a termination clause permitting Beauty Express to terminate her employment without cause upon provision of notice or pay in lieu of notice, along with any severance pay and benefits for the notice period under the applicable employment standards legislation. Termination for cause would result in no notice or severance pay.
The worker signed the document, although she wanted to take it home. The agreement stated that she had the opportunity to obtain legal advice, but the deadline to sign it that day prevented it.
In August 2019, Beauty Express informed the worker that her employment would be terminated in three months, along with 48 other employees, as part of a restructuring. The owner held a meeting with the terminated employees on Oct. 4 and invited them all to stay on as independent contractors, saying that they could potentially make more money and keep their own hours.
At the meeting, the owner used crude language and made a remark about lawyers saying stupid things, but about three-quarters of the terminated employees accepted the new arrangement.
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Reference to older workers
The owner also said he was concerned that older people lacked the drive and energy necessary to be productive independent contractors, but they could make more money if they had a long-time roster of clients.
The worker sued for wrongful dismissal, claiming damages for common law notice because the employment agreement was unenforceable and her time with the predecessor salon should be counted in her service time. She also claimed aggravated or punitive damages because her termination was a reprisal for complaining about her hours, and that she was subjected to age discrimination from the owner’s comments.
The Ontario Superior Court of Justice noted that when there is an existing employment relationship, consideration must be given for an employee to sign a new employment agreement or change an existing one. In this case, a new termination provision was a significant modification that warranted consideration, which Beauty Express did not provide, said the court in ruling that the 2018 agreement was void and unenforceable.
The court also found that there was no effort to allow the worker to take time or obtain the legal advice necessary to understand the agreement, so this also made it unenforceable.
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Employment agreement problematic
There was a lot wrong with the employment agreement foisted on the worker, but the court didn’t have to go deep into it because it wasn’t enforceable on its face, says Flett.
“There wasn’t sufficient consideration, firstly, and the [worker] was not provided with an opportunity to obtain the legal advice necessary to understand that,” he says. “And those are both kill shots to displace the agreement.”
Even if there had been consideration or an opportunity for the worker to seek legal advice, the termination clause was unenforceable in other ways, says Flett.
“The just-cause provision of the policy is in breach of the [Employment Standards Act] as it’s overly broad, and the without-cause provision is unenforceable for ambiguity,” he says. “The benefits provision of the clause is confusing and contradictory, and it doesn’t clearly limit benefits to the minimum statutory period – that’s a problem.”
And the sloppiness of the termination clause didn’t end there, adds Flett.
“The termination clause also makes the gaffe of referring to terminating the employee where it reads ‘If you’re terminated for cause,’ rather than ‘If your employment is terminated’ – I think dismissal is difficult enough without calling it a death of the individual themselves!”
Years of service
It was agreed that Beauty Express was not the same business as the previous salon in the department store, so the worker’s employment wasn’t continuous. However, the court found that the worker, as a long-term employee in the same position, provided more value than a new employee from unrelated employment would. As a result, although the worker wasn’t entitled to notice based on the full 20 years she worked in that location, she should be credited with half of that time period, said the court in finding that 10 months’ notice was appropriate.
Flett notes that employment standards legislation and the common law don’t provide a bridge between employers when a predecessor goes bankrupt, but the court in this case took into account the worker’s vulnerability in determining the notice entitlement.
“I thought the court’s emphasis on the [worker’s] previous years of service having significant value to Beauty Express – essentially, it saves the corporation from extensive or specific training – is a good approach to protect a vulnerable employee like this, with her age and service,” says Flett.
Valid employment agreements are even more important for an employer that is bringing in employees from a predecessor employer, whether bankrupt or not, he says.
“When you are stepping into the shoes of a previous business and continuing the employment of the previous employees, those contracts and agreements become all that much more important to ensure that there is a real stop and no regard for the previous term of employment factoring into any calculation of damages at termination of employment,” he says.
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The court found no reason for aggravated or punitive damages, as there was no evidence that the worker was targeted for reprisal for complaining about her hours. The fact that she was one of 49 employees terminated on the same day also hurt the credibility of the reprisal claim – particularly since the worker received an offer to continue as an independent contractor, said the court.
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The court found that the post-termination meeting was poorly executed and the owner’s language could have been better, but that didn’t take it to the threshold of mistreatment or age discrimination. Aggravated and punitive damages were meant to be for legal wrongs and egregious conduct, not poor etiquette, said the court.
The court noted that the owner referenced older employees, but he suggested that they could make more money. Employees of all ages were terminated, so there was no adverse impact specific to older employees, said the court, adding that the owner wasn’t trying to keep older workers out of the business but rather was pushing them to be successful contractors.
“[The owner] had a direct message for older employees that was really based on what he felt was their benefit to the company and the degree and likelihood of their success, versus a younger, less experienced, independent contractor who wouldn’t have the same longtime stable of clients,” says Flett. “So, indelicate language aside – which didn’t necessarily offend the court but didn’t please the court – he was looking to potentially entice older employees because of the benefit that they would bring to the company as independent contractors.”
Beauty Express was ordered to pay the worker seven months’ pay in lieu of notice – 10 months’ reasonable notice minus the three months already provided as working notice.
See Chin v. Beauty Express Canada, 2022 ONSC 6178.
If you have any questions or inquiries regarding termination provisions, contact Zubas Flett Law at 416-593-5844 or firstname.lastname@example.org.