Articles:
- Tariffs
- Remote Work / Constructive Dismissal
- Termination Clauses
Feeling Tarrif-ic Yet? Employment Considerations in Times of Uncertainty
Prateek Awasthi
For businesses, the past several weeks have been amongst the most unpredictable in recent memory. On a sometimes daily basis, businesses have had to respond to ever-changing realities to take into account threats of tariffs on goods exported to the United States, the actual imposition of such tariffs, the extension and non-extension of deadlines for tariffs to come into force, and Canada’s retaliatory tariffs on goods imported from the United States.
Such an uncertain environment makes it difficult to make investment and business decisions, including decisions regarding labour and employment matters. The possibility of an economic downturn as a result of the disruption in cross-border trade has all employers taking a closer look at their budgets and anticipating their future human resources needs, which is no easy task. This article highlights some of the key legal considerations for employers as they consider changes in their workforce to respond to an uncertain economic and business environment.
FLEXIBILITY IN TERMS OF EMPLOYMENT
For unionized employers, the collective agreement may include provisions regarding restructuring of the workforce to meet changing operational requirements. Employers can be proactive by engaging in negotiations with unions to build in provisions into the collective agreement, through a letter of understanding, for example, to increase flexibility, regain competitiveness or forestall closure.
In a non-unionized work environment, a claim for constructive dismissal could arise if an employer makes unilateral changes to an employee’s pay, hours of work, location, duties, reporting structure, other essential terms of the employment agreement. Where an employment agreement includes such terms, or a job description, employers may be able to make such changes by providing sufficient notice of upcoming changes.
The length of notice required to be provided depends under the circumstances, and must be commensurate with notice that would be owed upon termination. Employers may also offer employees new agreements that better respond to changing business and operational requirements, however, such offers must be made with caution, to avoid claims of constructive dismissal, and with offers of fresh consideration, in order to be valid.
LAYOFFS AND DISMISSALS
An unfortunate reality of economic downturns is that employers sometimes need to reduce their workforce either temporarily or indefinitely. In most situations, minimum standards legislation will allow temporary layoffs up to a certain number of weeks, however, a layoff could be considered constructive dismissal at common law, unless the employment agreement allows it (see Pham v. Qualified Metal Fabricators Ltd., 2023 ONCA 255).
Most collective agreements contain provisions regarding layoffs and seniority, allowing employers to downsize their workforce during slowdowns and scale up should the business climate improve. Non-unionized employers considering laying off employees should review their employment agreements to see if it allows for temporary lay-offs, and seek legal advice, particularly if they are considering mass layoffs, which are usually subject to additional statutory requirements depending on the applicable jurisdiction.
While dismissing employees, an employer’s potential liability depends on the terms of the collective agreement or the employment agreement but may not be limited to it. For non-unionized employers, where there is no written employment agreement that rebuts the presumption of reasonable notice at common law, the employer is usually liable for a reasonable notice period that allows the employee sufficient time to find alternative employment. The length of such a notice period could be as low as a few weeks or could go up to 24 months, or higher in exceptional circumstances. In a previous Employers’ Advisor, we discussed court decisions awarding damages for up to 30 months’ reasonable notice for an employee.
Recent decisions, particularly in Ontario, have made it increasingly difficult to enforce contractual provisions limiting entitlements upon termination to statutory minimums, as discussed in this Employers’ Advisor. Employers should therefore be aware of their liabilities at common law, and regularly review their employment contracts to ensure that the language is up-to-date with changing case law.
FLEXIBILITY IN NEW HIRING
Economic changes may also create new opportunities for employers, particularly due to an increasing demand for “Made in Canada” goods and services. Employers seeking to hire new workers in a climate of economic uncertainty may wish to take advantage of contractual provisions that provide them with flexibility during employment, and clarity on entitlements if it ends. However, employers should exercise caution while entering into fixed term contracts or independent contractor agreements, as they may not provide the benefits that employers commonly expect.
Fixed term contracts can convert into agreements for an indefinite duration if an employee continues working past the end date, or if such contracts are repeatedly renewed. Where a fixed-term contract is terminated prior to its end date, an employee may be entitled to damages equal to the loss of remuneration for the balance of the fixed term, without a duty to mitigate, resulting in unanticipated liability for employers (See: Howard v. Benson Group Inc., 2016 ONCA 256).
Similarly, a worker can be considered to be an “employee” at law even if work is performed under a written independent contractor agreement. In making such a determination, courts will consider a number of factors, including economic dependence, exclusivity, and the question of the individual carrying on business for themself or was the individual carrying on the business of the organization from which they were receiving compensation (See: McKee v. Reid’s Heritage Homes Ltd., 2009 ONCA 916).
A safer alternative is to enter into a written agreement that is appropriate for the circumstances providing flexible terms of employment, either with a short fixed term, or for an indefinite duration, but in all cases with enforceable termination provisions.
In-Person Work Not Even Remotely Permissible – A Cautionary Tale
Sharon Canete
In the recent unreported decision of Byrd v. Welcome Home Children’s Residence, the Ontario Superior Court of Justice – Small Claims Court (the “Court”) held that the Plaintiff was constructively dismissed after her employer mandated she return to in-person work, without notice, after being permitted to work remotely in Europe for more than one year. In its reasons, the Court highlighted the importance of employer’s establishing a well-defined right to recall an employee to in-person work as part of the employee’s remote work arrangements.
Background
The Plaintiff had been employed with the Defendant employer since 2018, serving most recently as the Manager of Clinic Support and Services for the employer’s Care Home.
In May of 2020, the Plaintiff advised her employer that she would be moving to Europe with her husband as he had been posted there by the Canadian Forces. Both the Plaintiff and her employer immediately began discussing how the Plaintiff could continue working for the employer on a remote basis, while living abroad. However, no formal agreement was reduced to writing. Ultimately, in September 2020 the Plaintiff moved to Belgium with her husband and family where she continued to work for the employer remotely with no issues.
Approximately one year later, the employer posted an ad for an on-site Residential Program Manager. Shortly after the new Manager was hired, the employer advised the Plaintiff that her hours of work were reduced to not more than 15 hours per week and the majority of her responsibilities were delegated to the new Manager and another employee. The Plaintiff was deeply troubled by the news and immediately took two weeks of unplanned vacation. Upon her return, communication between the parties continued to deteriorate. Through their respective lawyers, the employer advised the Plaintiff that she could either return to in-person work in Canada or resign.
The Plaintiff ultimately resigned and commenced an action for constructive dismissal.
Upon reviewing the facts, the Court held that by mandating her return to in-person work, the employer had made unilateral and fundamental changes to the terms of the Plaintiff’s employment contract which amounted to constructive dismissal. In coming to this conclusion, the Court noted that the Plaintiff’s ability to work remotely from Europe had became an accepted term of her employment, despite the lack of any formal written agreement. In addition, the Court held that employer never communicated to the Plaintiff that it retained the right to recall her back to Canada if it felt there were issues with the remote work arrangement. Consequently, the Employer’s ultimatum to the employee constituted constructive dismissal.
Key Takeaways
Employers wishing to create hybrid or remote work arrangements with employees should reduce these arrangements into writing, with clear, unequivocal language regarding the terms of the arrangement, including but not limited to the employer’s right to mandate the employee’s return to in-person work. Further, Employers wishing to exercise this right to recall should provide their employees with timely notice before instituting any in-person mandate.
Additionally, if the employer intends for any such arrangement to only be in place on a temporary basis, this should be expressly communicated in writing at the time the agreement is entered into. For all these reasons, employers utilizing either hybrid and remote work arrangements are encouraged to review their employment agreements to ensure that, among other things, their right to recall employees to in-person work are clear and enforceable.
An “Exacting Standard”: Termination Provisions Under the Knife Again
Whitney Miller
Since the Ontario Court of Appeal’s decision in Waksdale v. Swegon North America, there have arguably been few cases that have significantly altered the landscape of termination provisions in employment contracts. However, two recent decisions of the Ontario Superior Court reinforce the “exacting standard” with which Courts will analyze termination provisions in employment contracts, prompting employers to review and potentially redraft their employment contracts yet again.
Dufault v. The Corporation of the Township of Ignace
In this case, the Plaintiff worked for the Township of Ignace as a Youth Engagement Coordinator pursuant to a fixed term contract. The Plaintiff’s employment was terminated on a without cause basis and she was paid two weeks’ pay. She subsequently commenced litigation alleging wrongful dismissal, seeking damages totaling 101 weeks’ base salary and benefits.
The termination clause in the Plaintiff’s employment contract stated that the Township may “at its sole discretion and without cause, terminate this [employment agreement] and the [plaintiff’s] employment thereunder at any time upon giving to the [plaintiff] written notice as follows…”
As a preliminary matter, the parties agreed that the case was appropriate for summary judgement. The first issue to be determined was whether the termination clause was enforceable. The Court concluded that it was invalid. The employment contracted provided for no notice of termination pay upon a termination “for cause,” which implied the common law standard of cause rather than the higher standard of wilful misconduct under the Employment Standards Act, 2000 (the “ESA”). This had the effect of potentially depriving an employee of their statutory entitlements even where the higher wilful misconduct standard was not met.
The Court also found that the termination provision was contrary to the ESA because it did not capture this expansive definition of “regular wages.” The “without cause” termination provision provided for “payment of the employee’s base salary for two weeks per year of service to a maximum of four months or the period required by the ESA, whichever is greater.” However, pursuant to the ESA, an employee is entitled to receive all “regular wages,” such as vacation pay and commissions.
Most notably, the Court held that the termination provision contravened the ESA because it gave the Township the “sole discretion” to terminate the plaintiff’s employment “at any time.” The Court reasoned that “the right of the employer to dismiss is not absolute.” For example, the ESA prohibits an employer from terminating an employee in reprisal for attempting to exercise their rights under the ESA (section 74). Accordingly, the employment contract was unenforceable and the plaintiff was entitled to 101 weeks’ base salary and benefits, totaling $157,071.57 in damages.
On appeal, the Court reaffirmed that the “for cause” termination clause was unenforceable and contrary to the ESA. Since this rendered the remaining termination provision void, it was unnecessary to consider the appellant’s argument that the “without cause” termination provision also void. The Court stated that the issue should be left to an appeal where it would “directly affect the outcome.”
Baker v. Van Dolder’s Home Team
In February 2025, the Court had another opportunity to revisit the language “at any time” contained within the termination provisions of an employment contract. Here, the without cause termination provision in the plaintiff’s employment contract stated that the defendant employer could terminate the plaintiff’s employment “at any time, without just cause.”
In its analysis, the Court began by considering the principle that the decisions of judges of coordinate jurisdictions, while not binding, “should be followed in the absence of cogent reasons to depart from them.” He referred to those circumstances described in Hansard Spruce Mills Limited (Re), including where the validity of the judgment has been affected by subsequent decisions, the judge overlooked binding caselaw or a relevant statute, or the decision was otherwise made without full consideration.
The Court proceeded to reference the “authority of Dufault” for the principle that the ESA does not permit an employer to terminate employment “at any time.” Though the employment contract contained saving language, the Court emphasized that “an incorrect statement as to the ESA is not saved by general language stating that the employer will comply with the ESA.”
In its conclusion, the Court stated, “I must apply Dufault, as none of the reasons to depart from a prior decision referenced in Spruce Mills are applicable.” Therefore, the “without cause” termination provision was unenforceable. While the Court had no doubt the employer “intended only to comply with the ESA,” it concluded that the caselaw has nonetheless set an “exacting standard” with which employers must comply.
Takeaways for Employers
The decisions in Dufault and Van Dolden demonstrate that the Court will continue to interpret termination provisions very narrowly. An employer’s intention to comply with the ESA is irrelevant as to the enforceability of the provisions contained within an employment contract. Employers are encouraged to regularly review their employment contracts to ensure that they continue to comply with applicable employment standards legislations and new developments in the case law.
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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.
