Problems in Canadian
Business Law
Pol/Soc Sci 3165 6.0A
Tuesdays, 2:30-5:30
pm
Simon Archer
sarcher@torys.com
The Test
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Marked in about a month
TAs aware of test conditions, time
constraints, and feedback
Marking accordingly
If adjustments to marks need to be
made, I’ll make them. Don’t panic.
Now is the time to write your paper.
Don’t write me any more e-mail on this
subject.
This class
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Contracts of employment
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Contract of Employment
Nature of the Relationship
Form of the Contract
Duties of the Employer
Duties of the Employee
Termination of the contract of employment
Dismissal and wrongful dismissal
Employer misrepresentation
Employer liability to third parties
Employer liability for an employee’s injuries
History of employment
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Feudal arrangements:
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Early capitalism
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Sets of obligations in a hierarchy, wherein wealth is
exchanged for rudimentary forms of protection and
distribution of justice.
An initial re-organization of labour relations to meet new
activities: shipping, mining, some manufacturing. Creating
pools of skilled workers via incentives including some wage
labour. Early forms of contract law.
Industrial capitalism
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Emergence of factory system, requiring development of
contract law. Wage labour as “only option” to series of
unskilled, semi-skilled and even skilled labourers. K paradigm
includes wages, with no room to “work for self”, which is a
fundamental shift in labour relations.
Current conditions
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Technical and social changes to work
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Globalization
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Fordism replaced by post-Fordist paradigm, including
workerless factories, etc.
Changes in management philosophy: flexible, de-layer, tech
surveillance, just-in-time, outsourcing, etc.
Exit options for employers
Centralized control of disparate production sites (NYC)
Neoliberal ideological support (until lately?)
Problems with meeting challenges of New Economy
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Crises in industrial relations (no labour-capital accord any
longer)
Profit motive greater than peace motive for transnationals
(who don’t suffer effects politically)
Employment in general
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Historically not “pure” contract, e.g. vicarious liability a
part of the relationship
Not talking about collective bargaining here – just
individual contract of employment
Some typical characteristics
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Long-term relationship
• Vs. instant exchange, etc., often thought the paradigm in
bargaining theory of contract
• Cf. contracts in family law, etc.
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Unequal bargaining power in general
One party dictates terms, generally
Why do we get paid “in arrears”?
Why does the owner of the “capital” keep the product of
the combination of labour and capital?
Is choosing not to work really an option?
When are you an
employee?
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Two forms of “employment” for legal
purposes:
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Both have to be valid contracts
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Ongoing employment is not consideration
Tax consequences
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Contract for service, or
Contract of employment
Deductibility of expenses
Employment law consequences
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Especially statutory protections, ESA 2000
Nature of the relationship
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Employee or contractor?
What’s a contractor?
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Has some risk herself, takes initiative,
controls what is to be done, how it is to be
done. Often self-employed.
Degree of control
• Original test for employee (or servant): could
master dictate what was to be done under the
contract, and how it was to be done.
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But this didn’t always capture employees or
independent contractors
Employee or contractor
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Fourfold test
• Montreal v. Montreal Locomotive Workers Ltd.
[1947] PC
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Control
Ownership of tools
Chance of profit
Risk of loss
Organization test
• Are services rendered normal business
requirements, or adjunct or unusual services?
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But what about growth of self-employment:
does not meet control test, but effectively
employees?
Form of Contract
If fixed term and term is greater
than one year, then must be in
writing to be enforceable (SoF)
 Indefinite term K, no writing
required
 Exchange of letters good enough
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Terms of the K
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Long-term relationship
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Terms change, often unilaterally
Many implied terms (courts will easily imply terms)
A problem for K paradigm: make your own terms,
courts only enforce terms
Many employment Ks unwritten, if even thought of
What are terms of K
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Oral promises?
Office procedures?
Benefits policy manuals?
Implied terms?
Implied terms
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Laverty v. Cooper Plating Inc. (1987 Ont. Dist.
Ct.)
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Couple lived common law and friends of the defendant.
Wife worked for defendant and husband started up
company with complementary services (mixing
chemicals). Business became a competitor. Wife fired.
No evidence brought that despite apparent conflict of
interest, any improper actions happened.
Court cited “duty of faithful discharge to master”
(Pearce v. Foster 1885).
Held was just grounds for dismissal without
notice.
Explicit terms
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Ellison v. Burnaby Hospital Society (1992) SCC
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Woman fired from job after 25 years and promoted several
times. Is the “benefits policy document” part of the K or not?
It stipulates benefits, but also notes that no notice is required
for firing.
Factually, she saw it but did not advert to it in accepting
employment.
Court rules not part of the employment K, therefore period of
notice at CL is required.
Did her behaviour constitute express consent to accept the
terms of the policy document?
Does accepting a promotion constitute acceptance of new
terms not strictly bargained for?
Implied over explicit?
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Greeberg v. Meffert (1985) On. C.A.
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Clause in a real estate sales K of employment
is quite harsh, but agreed to by both, in which
the employers gets all the commissions if the
employee is fired. 150ks at issue.
Court “reads in” terms of “honesty and
good faith” that modify the meaning of
the penalty clause and make it so the guy
doesn’t lose his commission.
Duties in employment
contracts
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Two sources:
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Common law
Employment Standards Act 2000 (Ontario)
Employer’s duties
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Legislated minimums of safety
Legislated terms – minimum wage,
statutory holiday, maximum hours,
human rights and discriminatory practice
To provide tools, unless not custom of
trade
To provide means to calculate non-hourly
pay
Also minimums on termination, etc.
Duties of employee
To obey reasonable orders
 Confidentiality
 Diligence, application and skill
 Honesty
 Act in corporate best interest, in
near fiduciary manner (senior
employees and executives)
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Termination of employment
K
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Three steps in most analyses:
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Are terms valid part of the K?
• Do they comply with statutory minimum standards,
are they subject to duress or unconscionability
arguments);
• Are they “harsh terms”
• If valid and not harsh, then express terms of K
govern termination.
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In absence of express terms…
• What are implied terms of termination?
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What are damages?
Termination of employment
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By expiry of term in fixed term K
By breach of contract
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Dismissal for just cause
Dismissal without cause
• Constructive dismissal
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Remedy: sue for breach of K.
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Statutory notice: Employment Standards Act
2000 (Ontario)
Common law “reasonable notice”
Note: different and mutually exclusive
procedures
Dismissal for cause
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When?
Incompetence, negligence, crimes, etc.
 But also for breach of implied duties of
good faith, etc.
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• BUT: McKinley vs. BC Tel SCC 2001.
For any serious breach of contract of
employment
 Disruption of corporate culture (akin to
human rights issues, but broader)
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McKinley vs. BC Tel
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McKinley, a CA, had taken a leave of absence from work due to
health problems after 16 years of service. Eventually, the
employer terminated McKinley, who rejected the accompanying
offer of severance and commenced a wrongful dismissal action.
Three days into the trial, the employer changed its defence to
one alleging that McKinley had lied about his medical condition
and the treatments available for it.
The allegation was made after the employer discovered a letter
McKinley had written to one of his physicians. In the letter,
McKinley referred to an earlier recommendation made by the
physician that McKinley should take a certain medication upon
returning to work. Based on this letter, the employer claimed that
McKinley had deliberately withheld the fact that his physician had
indicated that he could safely return to work if he went on this
medication. McKinley denied that he had lied.
SCC: only cause for dismissal if a “breakdown in employment
relationship”
Dismissal without cause
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Wrongful dismissal
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No alleged reason and,
Failure to provide reasonable notice, and/or,
Manner in which termination was handled
Constructive dismissal
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Unilateral change in contract or conditions by
employer
Must be “core” terms of employment
• Cf. “fundamental breach”? Could that apply here?
Remedies for without cause
termination
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If no express term for termination
In a “normal” K, we would sue for expectation losses, or
lost profit
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In absence of express term (or where express term has
been negatived by court) obligation to put in term of
reasonable notice: Machtinger v. HOJ Industries [1992]
SCC.
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What is lost profit on an indefinite term K?
This reasonable notice period becomes very important,
because of underlying assumptions about employment (e.g.,
what is reasonable); that is, reasonable notice in Japan in
1975 is life employment, but in our country, it usually much
less, because we don’t reasonably expect to be employed.
Can also have aggravated damages (Wallace damages)
NB: Also a duty to mitigate losses.
Remedies for without cause
termination
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Common law:
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ESA 2000:
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3-4 weeks’ pay per year of service in lieu of
“reasonable notice”
About a week’s pay per year of service
Must get benefits for same period (but may have
to prove benefits part of the K)
Senior executives get much, much more
Administrative assistants get less
Never more than 24 months
Question
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Why do you think “specific
performance” is NOT available as a
remedy to breach of an employment
K?
Employer misrepresentation
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Inducing an employee to join a firm
based on inflated or misrepresented job
description
Basis for a tort
Also, court can expand the “reasonable
notice” period
Also applies to people “lured away” from
other jobs – effectively makes the
employer liable for the period of
employment at the former job
Other employer liabilities
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Employer liability to third parties
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Vicarious liability for wrongs committed by
employee to third party
“Ordinary scope of employment”
Employer liability for an employee’s
injuries
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Really a rule from tort as well that has lead to
a less costly solution for employers:
Worker’s Compensation
Summary
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Two problems in contract of employment law: social and
conceptual
Social
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General use of K in employment context does not resemble the
classic model of K. Basically unequal bargaining power in all but few
environments.
Characteristics: terms of K are usually undefined at bargaining stage;
unequal bargaining power; K can change almost unilaterally and very
easily over time (e.g., duties, pay scale, benefits, etc).
Conceptual
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“Status” (parent-child, mental disability, etc) better describe the
actors’ relations in employment (old master-servant paradigm,
perhaps now a “citizenship” status that carries all rights across
contexts.
In status, the LAW supplies universal terms of the relationship...i.e.,
not just minimum standards, but robust standards for employment.
Today, folks regard jobs as lucky, not rights, so this paradigm
(status) has little popular currency or in a sense, has counterindications in the real world behaviour/attitudes of people.