Employers' Advisor

Employers’ Advisor March 2023

Articles:

  1. Workplace Relationships: Lessons from the Mayor’s Office
  2. Healthy Remedy: Former NB Health CEO Awarded Hefty Damages after Public Firing
  3. Employers Beware: Effective June 23, 2023, Wage-Fixing and No-Poaching Agreements are Outlawed

Workplace Relationships: Lessons from the Mayor’s Office

Anthony Kwong

On February 17, 2023, Toronto Mayor John Tory officially resigned following revelations that he had a relationship with a city staffer who reported to him. The scandal serves as an important reminder to employers of the potentially problematic nature of workplace relationships and the need to set clear rules and expectations about such relationships before any problems arise.

Potential Cause for Concern

Workplace relationships can be problematic, particularly relationships between superiors and those who report to them where there is a power imbalance. In such circumstances, there can be a concern about the employee’s ability to meaningfully consent to such a relationship where their superior has the ability to affect their career progression and outcomes. An employee may feel pressured or compelled to accept and reciprocate romantic advances and/or to continue the relationship out of fear of potential retaliation. This carries a risk of legal liability for the employer due to potential sexual harassment or sexual assault allegations or discrimination-based claims, particularly in the human rights context. Employers also have an obligation to prevent workplace harassment and may be liable for failing to take adequate steps to do the same.

Even where a workplace relationship is entirely consensual, it could result in real or perceived favouritism towards the employee. Other employees may become disgruntled if it appears as though the employee is receiving preferential treatment or priority for promotions or opportunities, even where such decisions are made based on completely legitimate and unrelated reasons. This may have an effect on morale in the workplace and may impact employee productivity.   

Workplace relationships between employees at the same reporting level may carry reduced potential for liability on the part of the employer, but may still be problematic, particularly if and when such relationships end, as this may cause friction and issues between employees. Again, such circumstances may lead to allegations of harassment and the employer is legally required to duly investigate such allegations and to take appropriate corrective action if substantiated.

The Need for a Clear Policy

Workplace relationships are not illegal. However, organizations may legally implement rules and policies to manage and/or restrict such relationships. It is advisable to have a clear policy in place to ensure that rules and expectations are clear to all employees. Employers may choose to prohibit all such relationships entirely or prohibit relationships between superiors and their reports only. Most importantly, policies should require the disclosure of any workplace relationships to management or HR. Employers should note that enforcing a blanket prohibition on workplace relationships altogether may be difficult, and a blanket prohibition may also discourage employees from disclosing the existence of such relationships out of fear of potential disciplinary action.  

Organizations are not required to have a policy on workplace relationships, but employers are legally obligated to provide a harassment and discrimination-free workplace. Having a clear workplace relationship policy in place is a helpful and useful tool in establishing that the employer has taken appropriate and adequate steps to fulfill their legal obligations in this regard.

At a minimum, a workplace relationship policy should:

  • set clear rules on the permissibility of workplace relationships;
  • set clear expectations on the need for respectful and professional conduct;
  • require employees to disclose if and when they enter into a workplace relationship;
  • set procedures for reporting any inappropriate behaviour or misconduct; and
  • explain how the policy will be enforced, including through disciplinary action.

Having a clear policy gives employers options for managing workplace relationships so that they can take reasonable actions to minimize any potential liability, such as removing the superior from managing the subordinate, or requiring employees to provide written confirmation that the relationship is consensual. This has the effect of reducing legal risk to the employer, as well as minimizing the effects of any real and/or perceived conflicts of interest in the workplace.

Key Takeaways for Employers

Workplace relationships can cause real problems in the workplace which may result in legal liability on the part of the employer. Workplace relationships between superiors and subordinates are particularly problematic, due to issues related to meaningful consent and potential human rights-related allegations, but also due to the perception of such relationships by other employees. Workplace relationships among employees at the same level are less problematic, but may also cause workplace issues and hinder the employer’s ability to manage the workplace effectively.

Employers should ensure that they have a workplace relationship policy in place so that they are able to set clear rules and expectations about any such relationships, and so that they are able to effectively manage and respond to any workplace issues which may arise as a result. Employers are advised to seek legal advice on drafting workplace relationship policies to ensure that rules, expectations, and procedures are clearly communicated to employees and to ensure that enforcement mechanisms are appropriate and reasonable in the circumstances.

Healthy Remedy: Former NB Health CEO Awarded Hefty Damages after Public Firing

Matthew Kim

The recent New Brunswick decision of Dornan v New Brunswick (Health) serves as a cautionary tale to employers contemplating terminating an employee on a fixed-term contract.

That case saw former Horizon Health Network CEO Dr. John Dornan being the equivalent of five years’ of salary and benefits, less amounts already paid, and $200,000 in aggravated damages – despite the fact that Dr. Dornan had been employed for a scant four months at the time of his termination.

The Basic Facts

Dr. Dornan assumed the role of CEO of Horizon Health Network in early March 2022 pursuant to a five-year fixed-term contract Approximately two weeks after the commencement of his employment , Dr. Dornan was provided with a back-dated written offer of employment, which he  was asked to accept by signing. Though such a clause had not previously been discussed, the offer of employment contained a termination clause that purported to limit the doctor’s entitlements to severance pay.

Three months later, a tragic incident occurred where a patient died while waiting in the ER waiting room at Dr. Everett Chalmers Regional Hospital. Two days later, Dr. Dornan was asked by the Minister of Health to attend a news conference scheduled for the following day, but was not informed of the purpose of the news conference.

The next day, while on his way to the news conference, Dr. Dornan received a phone call in which the new Minister of Health informed him that he had been terminated from his position.

During the news conference, the Premier referred to the death in the ER waiting room and confirmed, among other things, that Dr. Dornan had been removed from his position.

Dr. Dornan filed a grievance challenging his termination under the New Brunswick Public Service Labour Relations Act.

Unenforceability of the Termination Clause

The Adjudicator ruled that the termination clause contained in the employment contract was unenforceable, as it amounted to an amendment to an oral contract of employment that had been made without providing Dr. Dornan with valid “consideration” for that amendment. This was because Dr. Dornan had already been offered and had accepted employment with, and had already began working for, Horizon Health prior being asked to sign a written employment contract containing a clause limiting his entitlements upon termination. 

The Adjudicator therefore upheld the grievance and awarded Dr. Dornan the full amount of his wages and benefits for the entire five year period covered by the fixed-term contract, less amounts already paid.

Mitigation

The Adjudicator then considered whether Dr. Dornan had a duty to mitigate his losses.

Dr. Dornan argued that he had no duty to mitigate damages under a fixed-term contract, citing a number of Ontario decisions that have held that absent an enforceable contractual provision limiting entitlements upon termination, a fixed-term employment obligates an employer to pay a terminated employee until the end of the contract’s term. The Adjudicator expressed that he was inclined to agree with Dr. Dornan’s position, but ultimately held that the issue was immaterial given that the evidence was that the Doctor was unable to mitigate his losses in any event.

Aggravated Damages

The Adjudicator’s also considered whether an award of aggravated damages was appropriate in the circumstances and if so, how much.

In describing the press conference and finding that Dr. Dornan suffered a loss of reputation that damaged his ability to market his skills as both a doctor and administrator, the adjudicator wrote:

The manner in which the grievor was terminated was the antithesis of good faith. The employer did not meet with the grievor in private to discuss its decision, it did not give the grievor an opportunity to address the concerns of the employer and it was done in a very public manner that had the effect of diminishing the otherwise stellar reputation of the grievor. The actions of the employer were anything but “candid, reasonable, honest and forthright with its employees” (Honda).

The Adjudicator awarded Dr. Dornan fully $200,000 in aggravated damages.

Concluding Thoughts

The result in this case is similar to the recent Ontario decision of Tarras v. The Municipal Infrastructure Group, where the court awarded the employee the balance of the Plaintiff’s fixed term contract—amount to a breathtaking damages award of $479,166.67—and benefits for that time period, all with no deduction for any failure to duty to mitigate.

Employers considering terminating employees with fixed-term contracts should take heed of the expensive lessons learned in both Tarras and Dornan, as resulting damages may be staggeringly high depending on the amount of time remaining in its term – even for extremely short-service employees and even if an employee makes no effort to mitigate their damages.

Additionally, the Dornan case is a reminder that employers should seek to ensure that written employment contracts are in place prior to the commencement of an employee’s employment. Otherwise, the terms of such contracts that are intended to work to the benefit of the employer – including the all-important termination clause – may well be judged to be unenforceable.

Employers Beware: Effective June 23, 2023, Wage-Fixing and No-Poaching Agreements are Outlawed

Roza Milani

The Competition Act (the “Act”) establishes basic principles for the conduct of business in Canada with the purpose of promoting the efficiency and adaptability of the Canadian economy, expanding opportunities for Canadian participation in world markets, and ensuring that small and medium-sized enterprises have an equitable opportunity to participate in the Canadian economy.

Currently, section 45(1) of the Act makes it a criminal offence for competitors or potential competitors to conspire, agree or arrange to enter into an agreement to fix prices, allocate markets or restrict the production or supply of a product. The penalties under section 45 of the Act are imprisonment for a term not exceeding 14 years and/or a fine not exceeding $25 million.

Bill C-19, Budget Implementation Act, 2022, No. 1 (the “Bill”) was passed by the federal legislature last year. Division 15 of Part 5 of the Bill includes several amendments to the Act, one of which is the criminalization of wage-fixing and no-poach agreements. The Bill adds a new subsection 45(1.1) to the Act, which unlike subsection 45(1) also applies to non-competitor employers. Subsection 45(1.1) prohibits unaffiliated employers from conspiring, agreeing or arranging to:

a) fix, maintain, decrease or control salaries, wages or terms and conditions of employment (“wage-fixing agreements”); or

b) not solicit or hire each other’s employees (“no-poach agreements”).

The amendments to the Act also update the penalties, so that the maximum criminal fine will be in the discretion of the court and not limited to the higher end of $25 million.

The amendments come into force on June 23, 2023.

The Competition Bureau – an independent law enforcement agency responsible for the administration and enforcement of the Act has published a guide on the new amendments (the “Guide”), where the Bureau describes the new provisions as follows:

Wage-Fixing Agreements

The following agreements between employers are prohibited:

  • agreements to fix, maintain, decrease or control salaries;
  • agreements to fix, maintain, decrease or control wages; and
  • agreements to fix, maintain, decrease or control terms and conditions of employment, where “terms and conditions” include the responsibilities, benefits and policies associated with a job. This may include job descriptions, allowances such as per diem and mileage reimbursements, non-monetary compensation, working hours, location and non-compete clauses, or other directives that may restrict an individual’s job opportunities. The Bureau’s enforcement generally is limited to those “terms and conditions” that could affect a person’s decision to enter into or remain in an employment contract.

No-Poaching Agreements

All forms of agreements between employers that limit opportunities for their employees to be hired by each other are prohibited. Examples of such limitations include restricting the communication of information related to job openings and adopting hiring mechanisms, such as point systems, designed to prevent employees from being poached or hired by another party to the agreement.

The offence is restricted to those instances where employers agree or arrange to not solicit or hire “each other’s” employees. In other words, it is not an offence when only one party agrees to not poach another’s employees. However, when there are separate arrangements that result in two or more employers agreeing to not hire each other’s employees, the Bureau may take appropriate enforcement action. Employers should note that in determining whether an agreement exists, the Bureau will consider whether the parties to the alleged agreement or arrangement reached a consensus, either explicitly or tacitly.

Key Takeaways for Employers

Employers should review and understand the new prohibitions described in the Act. Significantly, the new restrictions will apply to existing contracts – not just new contracts entered into after the June 23 effective date. It is important that employers take steps to ensure that they are in compliance with the new legislative requirements by June 23, 2023 to mitigate the potential risk of criminal prosecution and/or fines.

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This newsletter is not intended as legal advice.  Any employer or organization seeking assistance should feel free to contact a Mathews Dinsdale lawyer for assistance.

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