The most dramatic and fundamental change to employment law in 2020 is the unenforceability of longstanding employment contracts.
Virtually no employment contracts from early 2020, either limiting dismissal damages or stipulating that employees will forfeit remuneration (such as bonuses, commissions, pension vesting, etc.) that would have accrued during the period of notice following their dismissal are enforceable any longer.
This is a result of a combination of the Matthews v. Ocean Nutrition Canada Ltd. decision by the Supreme Court of Canada, which has had more impact on this field than any case in the last 20 years (and in which Howard Levitt acted for the successful party) and a series of decisions by the Court of Appeal for Ontario.
The Supreme Court, among other things, made clear that if there is a clause in a contract that detracts from employees’ rights, it cannot be buried in the contract but must be brought clearly to the employee’s attention. The Supreme Court also discusses, the duty of good faith that employers and employees have to each other throughout their employment relationship.
The main legal point of Matthews is that there is a presumption that an employee is entitled to be awarded everything they would have been entitled to if they had actually continued working throughout the period of notice. All forms of remuneration are included: increased vesting, pensions, bonuses, stock options, everything.
David Matthews was awarded $1.1 million for long-term incentive plan benefits that he would have received if the company were ever sold. The company was sold about a year after his dismissal, and his notice period was held to be 15 months, so he would have received the LTIP during that notice. Although the contract in many ways was actively engineered to exclude these LTIP entitlements, the court awarded it anyway.
There is now an extraordinarily high threshold in contractual drafting to overcome that legal presumption. For example, simply stating that the person’s entitlements are contingent on their being “actively employed” or even “lawfully employed” at the time that the commission, LTIP, vesting of pension, etc., would have occurred, is insufficient language to deprive the employee of the benefit.
It is clear that regardless of the language used, you cannot exclude any benefit that would have accrued during the statutory notice period following termination under the Employment Standards Act (ESA), at least in those provinces where statutes mandate continued benefits for a number of weeks after dismissal.
In addition to Matthews, a series of cases in Ontario have also spelled doom for the vast majority of termination provisions. The Court of Appeal for Ontario has determined that all ambiguous language must be read in the employee’s favour and the presence of ambiguity will nullify a termination provision. Any ambiguity will be fatal. For example, simply stating that the employee will get the greater of their employment standards entitlements or some greater amount, if not worded precisely and correctly, will not hold up because the courts will find the language to be ambiguous.
Smart employers will draft new contracts considering, among other things, the following:
The law on employment contracts in Canada has changed drastically over the last 4-5 years. Most employment contracts made prior to 2020 will be unenforceable and employers who relied on clauses in these contracts will find they will often have to pay large amounts in lieu of common law notice of termination.
Since the ruling in Matthews v Ocean, which Howard Levitt argued before the Supreme Court of Canada, employees have many more rights in their contracts than ever before.
Employers will find this webinar very valuable in order to make decisions on how to deal with employees terminated pursuant to their older employment contracts as well as writing new employment contracts for employees they are ready to hire.
Employees will gain knowledge regarding their termination entitlements and have better understanding on when to seek legal counsel to pursue their claims.