The ESA has been updated to clarify vacation pay.  Specifically, a written agreement on vacation pay is mandatory if an employer pays vacation pay in any way that is not “pay in a lump sum before the employee takes vacation.”

So, if an employer pays vacation pay on each regular paycheque or via salary continuance throughout the employee’s vacation (or any other way that is not lump sum before taking vacation), the law states that the employee must agree in writing to that arrangement.

Now is a great time for employers in Ontario to review their employment agreements.  If there is no agreement as to how vacation pay is paid, employers may need to introduce separate agreements about vacation pay in order to be fully compliant with the ESA.

If there are any other changes that may need to be made to an employment agreement (like updating a termination clause, benefits, job duties), now is the time to do it.

Reach out to our team if you have questions or need a new employment agreement made for your team.

The post Vacation Pay Agreements Mandatory as of June 21 appeared first on FREEDIN & ROWELL LLP.

If the provincial government passes Bill 190, the following changes will come into effect:

Changes to the ESA

• Every publicly advertised job posting must include a statement about whether it is for an existing vacancy. This requirement may be subject to prescribed exemptions. 
• Create a “duty to inform” job interviewees by the employer of ‘prescribed information’ (the contents of which the government has yet to determine). The “duty to inform” aims to ensure employers respond to job applicants and prevent employer “ghosting.” 
• Employees are no longer required to provide sick notes from a qualified health practitioner when exercising their right to statutory sick leave.  An employer may require the employee who takes a job-protected sick leave to provide reasonable evidence in the circumstances of their entitlement to the leave.   
• The maximum fine for individuals convicted of violating the ESA will increase from $50,000 to $100,000. 

Changes to the OHSA

• The OHSA now applies to ‘telework performed in or about a private resident. However, a private residence where a worker performs telework will not be considered an “industrial establishment” for the purposes of the OHSA.  
• The definition of workplace harassment will now include ‘virtual harassment,’ which means harassment that occurs “virtually through the use of information and communications technology.” 
• Joint health and safety committee meetings can now occur remotely rather than exclusively in-person. 
• Any employer-provided washroom facilities for worker use must be maintained in a clean and sanitary condition. 
• Employers are now permitted to post workplace materials required by the OHSA in an electronic format, provided the materials are readily accessible to all workers. 

 Changes to the WSIA

• Amendments to the WSIA will extend coverage to wildland firefighters and wildland firefighter investigators for (1) post-traumatic stress disorder and (2) primary-site skin cancer if the worker had at least ten (10) years of service before their diagnosis. 

The government has yet to propose a date for these amendments to come into force. However, we will continue to monitor Bill 190’s progress and provide timely updates. Please feel free to contact a FREEDIN & ROWELL Labour and Employment Group member with questions, comments, or concerns about these potential legislative changes.

The post Working For Workers Five Act Introduced – What This Means for Employers appeared first on FREEDIN & ROWELL LLP.

Requirements for Publicly Advertised Job Postings

On a future date (to be prescribed by regulation), all employers are required to abide by the following regarding their publicly advertised job postings:

• Employers must include information about the expected compensation, or range of expected compensation, for the job position.
• Employers are prohibited from (i) requiring job applicants to have prior Canadian work experience and (ii) including Canadian work experience requirements in any associated job application form.
• Employers must disclose whether they use artificial intelligence to screen, assess or select job applicants (the criteria for what constitutes “artificial intelligence” will be prescribed by regulation).
• Employers must retain copies of every publicly advertised job posting and associated application form for three years after the posting is removed from public view. 

Vacation Pay

Bill 149 also clarifies amendments to the Employment Standards Act’s current vacation pay provisions (“ESA”). As of June 21, 2024, employers require written agreements if they intend to pay vacation in any method other than a lump sum before the employee’s vacation. Before Bill 149, the ESA permitted an employer to pay vacation pay at an alternative time, such as on each regular pay or via salary continuance throughout the employee’s vacation, if and as agreed to by the employee. Bill 149 now clarifies that any agreement regarding a different method of vacation pay must be in writing.

Other Legislative Amendments 

As of March 21, 2024:

• Unpaid trial shifts are banned, as the definition of “employee” has been amended to confirm that work performed during a “trial period” is considered “training,” which constitutes work performed for which employers must pay employees. 
• Employers cannot make deductions from an employee’s wages or cause the employee to return their wages to the employer in circumstances that now also include where a customer of a restaurant, gas station or other establishment leaves the establishment without paying for the goods or services taken from, consumed at or received at the establishment.

As of June 21, 2024:

• When an employer has a “tip pool” or “tip sharing” policy, employers must put that policy in writing and post it in a visible place in the workplace.
• Employers must pay employee tips or gratuities by cash, check payable only to the employee, direct deposit (subject to aforementioned direct deposit requirements), or any other prescribed method.
• Accounts used for payment of wages by direct deposit must meet the following requirements: a) be selected by the employee and in the employee’s name; b) no person other than the employee or a person authorized by the employee has access to the account; and c) the account meets the prescribed criteria, if any.

On a date to be named by proclamation of the Lieutenant Governor:

• Bill 149 will amend the Workplace Safety and Insurance Act, 1997, to provide that firefighters and fire investigators diagnosed with primary-site esophageal cancer will be entitled to benefits through the Workplace Safety and Insurance Board after 15 years of employment (a 10-year decrease from the previous threshold of 25 years of employment).
• Bill 149 will amend the Fair Access to Regulated Professions and Compulsory Trades Act, 2006, to allow the government to prescribe mandatory requirements for determining whether a regulated profession assesses qualifications transparently, objectively, impartially, and fairly.

Takeaway for Employers

Employers should review their current practices to ensure compliance with these amendments. This can include reviewing existing employment contracts to ensure they remain in compliance with the ESA, developing or redrafting applicable workplace policies, booklets, guidelines, and developing or enhancing workplace procedures related to job advertisement retention. 

Feel free to contact a member of the FREEDIN & ROWELL Labour and Employment Group with questions, comments, or concerns about these legislative changes.

The post Working For Workers Four Act Receives Royal Assent – What This Means For Employers appeared first on FREEDIN & ROWELL LLP.

Over the past 20 years, judges across the country have found “Bad Words” and “Good Words” in employment contracts. Seasoned employers and HR practitioners know them well (“benefits,” the “common law,” mentions of previous tenure, requiring “Canadian” experience, etc.). If you don’t have the Good Words or do have the Bad Words, then the contract may not be as strong as you think – we have warned employers about the required changes to their agreements within the last few years to offer proper termination clauses.

In February 2024, one judge in Ontario has added two new sets of “Bad Words” for termination clauses in employment contracts: “in its discretion” and “at any time.”

Yes, you read that correctly: if your employees’ termination clauses contain either of those sets of words, another judge in Ontario may tell you that your termination clause is not worth the paper it’s written on.

This new guidance to employers comes from the Superior Court of Justice’s recent decision in Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029 (“Dufault”). 

In the case, the terminated employee started a claim for wrongful dismissal against the former employer. As is typical, the Court was asked to analyze the termination clause and determine whether it limited the employee to the minimum amount of termination entitlements. 

The Court found multiple defects in the termination clause (which stated, among other things: the employer “may at its sole discretion and without cause, terminate this agreement and the Employee’s employment thereunder at any time upon giving the Employee written notice etc. …” 

The employee successfully argued that the language bolded above misstates the minimum employment standards since it attempts to have ‘sole discretion’ to terminate an employee’s employment at any time – but the minimum standards specifically state that an employer is prohibited from terminating an employee’s employment, in some very specific circumstances. The Court used the following examples of where some terminations “at any time, in its sole discretion” could be a violation of the ESA: when an employee returns from a job-protected leave of absence, when an employee asks about or exercises any minimum standard right (like filing a complaint with the Ministry of Labour). In these situations, the minimum standards legislation in Ontario, the Employment Standards Act, 2000, specifically disallows an employer from terminating an employee. 

Because there was a chance that the termination clause could offend the Employment Standards Act, 2000,  the Court invalidated the termination clause and awarded the Plaintiff complete common law damages for wrongful dismissal. This is a common way for judges in Ontario to invalidate termination clauses – even if there was no evidence that the employer attempted to or did offend the law.

This is a brand new case but has received much attention online and among employment lawyers. While courts have not applied this case in other decisions, employers should be aware of the decision and the impact on the business. Any employee termination from 2022 and 2023 should be reviewed. Any existing future employee contracts should be reviewed and updated where necessary. 

In any event, FREEDIN & ROWELL will continue to monitor case law to see whether the case remains good law in Ontario and Canada. 

Don’t hesitate to contact a member of FREEDIN & ROWELL’s Labour and Employment Law Group if you need help reviewing operations or preparing strategies to mitigate potential risks. 

The post Important Update: New “Bad Words” for Employment Contracts appeared first on FREEDIN & ROWELL LLP.

Entities covered by the Act can include:

• Canadian public companies;
• Canadian private businesses; 
• Entities that import goods into Canada; 
• Any governmental department; and 
• Crown corporations and their subsidiaries. 

For the purposes of the Act, the following types of entities must comply with the Act’s guidelines:

1. Organizations listed on a Canadian stock exchange; 
2. Has a place of business in Canada, does business in Canada, has assets in Canada, and has met two of the following conditions in at least one of the last two fiscal years:
   •  $20,000,000 or more in assets 
   • $40,000,000 or more in revenue; and
   • 250 or more employees. 
3. Is prescribed by any additional regulations (the government has not enacted any at this point)

The Act requires that on or before May 31 of each year, government institutions and entities report to the Minister of Public Safety and Emergency Preparedness on the steps taken during the previous financial year to prevent and reduce the risk of using forced or child labour. 

The report must also include information about the government institution’s or entity’s:

1. structure, activities and supply chains; 
2. policies and due diligence processes concerning forced and child labour; 
3. activities and supply chains that carry a risk of forced or child labour being used and the steps it has taken to manage that risk;
4. measures taken to remediate forced or child labour; 
5. any measures taken to remediate the loss of income incurred by the most vulnerable families that result from any measure taken to eliminate the use of forced or child labour from its activities and supply chains; 
6. training provided to employees on forced and child labour; and 
7. its process for assessing its effectiveness in ensuring that the organization does not use forced and child labour in its activities and supply chains.

The Minister must maintain an electronic registry of all submitted reports, which will be available to the public on the Department of Public Safety and Emergency Preparedness website. The Minister also has the discretion to impose specifications on the form and manner in which organizations provide reports. 

Reporting entities that fail to comply with the Act are guilty of an offence punishable on summary conviction and liable to a fine of not more than $250,000, as are persons who knowingly make a false or misleading statement or knowingly provide false or misleading information to the Minister or persons designated by the Minister. Directors, officers, and agents of entities who directed, authorized, assented to, acquiesced in or participated in the commission of an offence under the Act can also be found guilty of the offence and liable on conviction to the same penalties.

Although organizations with material supply chain risk may already engage in diligence and reporting exercises, the Act will likely capture many entities that have not previously considered potential modern slavery issues. With reports under the Act due on or before May 31, 2024, organizational compliance with the Act should be of the utmost importance. Businesses should develop comprehensive programs relating to forced and child labour in their supply chains and should consider known risk factors related to forced and child labour, such as suppliers located in countries with weak rule of law, corruption, and known human rights violations. Organizations should also consider if their suppliers employ vulnerable workers such as migrant workers.

Important Updates

Following up on our February 14, 2024, article regarding the implementation of the “Fighting Against Forced Labour and Child Labour in Supply Chains Act” (the “Act”), the federal government published an Updated Guidance regarding the Act. While the reporting deadline for organizations remains May 31, 2024, there are some key changes organizations should be aware of.

New information regarding which entities are required to report

The Updated Guidance states that a subsidiary must determine if the Act applies to it independently of its parent, rather than relying on the consolidated financial statements belonging to the parent. The subsidiary should evaluate its own financial statement to determine if it falls within the size-related thresholds outlined in the definition of entity. If the definition of entity captures the parent company and the subsidiary, and they both have reporting obligations, they can submit a joint report. Additionally, an organization can use its employment and tax records to determine if it meets the requirements of “doing business in Canada” or having assets in Canada.

Removal of references to selling or distributing in the guidance

In its discussion of the applicability of reporting requirements, the Updated Guidelines no longer references the sale and distribution of goods. However, it’s crucial to note that the Act has not been amended and still includes a reference to entities involved in the sale and distribution of goods as reporting entities. This creates a potential discrepancy between the Updated Guidline and the Act, which could lead to confusion about when a reporting obligation is triggered.

Specific guidance for government institutions

Provincial and municipal governmental institutions are not subject to the reporting requirements under the definition of “government institutions” in the Act. Some provincial Crown corporations, however, may fall under the definition of “entity” and be required to report.

Conclusion

The update to the guidelines provides some helpful clarifications for reporting entities but has also created new ambiguity for some entities. As a reminder, reports under the Act are due by May 31, 2024. If you have any questions on whether your entity falls under the Act and how these reports should be prepared and filed, please reach out to a member of our team.

The post What Organizations Need to Know About Canada’s New Anti-Forced Labour Supply Chain Law appeared first on FREEDIN & ROWELL LLP.

It’s the new year! For most employers and employees, vacation calendars reset in January. This is an opportune time to review vacation policies and entitlements – and complete a Vacation Pay Audit for your business.

Let’s review vacation generally in Ontario, and then we will discuss Vacation Pay Audits.

Vacation Pay and Time: What’s the Difference?

Even though we often use the terms interchangeably, vacation pay and vacation time are distinct and separate in Ontario. Employers must understand the difference between the entitlement to vacation time and pay to ensure legal and contractual compliance.

Vacation Time

Almost all employees in Ontario earn vacation time off. It resets during each “vacation entitlement year” which can match the calendar year or be an alternative vacation entitlement year. Technically, new employees do not receive any vacation time off in their first vacation entitlement year (since they have not earned/accrued it). But an employer can allow an employee to take vacation time off before it has been fully accrued in the previous year. 

For eligible employees, they are entitled to at least 2 weeks of vacation time per year; after completing five years of employment, the minimum amount of vacation is 3 weeks per year. An employment contract can contain a greater amount of time off.

A “week” means one week for that employee; it could be a standard 40-hour work week, or it could be 3 hours (every employee is unique). But the minimum standards do not require an employer to give a certain amount of days or hours of vacation; the minimums state an employee receives a certain amount of weeks of vacation time off work.

In addition, employers can force employees to take vacation at any point in the year, so long as the employer sets that vacation in blocks of weeks and not any individual days or hours. This equally applies to “unbookable” vacation weeks: an employer can disallow employees to book vacation on certain weeks of the year if the employer so chooses. Generally, all vacation is subject to the employer’s discretion, but the employee must be allowed to take at least their agreed-upon vacation.

Employers and employees can agree to “carry-over” vacation time to a future year, but such carry over should not affect the amount of vacation pay that employee ultimately receives.  The percentage still applies.  The ESA in Ontario technically states that vacation time off expires after 10 months after the end of that vacation entitlement year. In other words, the minimum ESA standard is that an employee uses their 2023 vacation weeks no later than October 31, 2024 (for a standard calendar year vacation entitlement year).

Vacation time off data should be tracked and stored by the employer for at least 5 years post-vacation.

Vacation Pay  

As we said above, vacation pay is separate from vacation time off. Vacation pay is technically an additional percentage of the employee’s gross earned wages from the previous vacation entitlement year (or current year if the employer and employee have agreed).  So, where an employee is entitled to 2 weeks of vacation time off, they receive an additional 4% of their wages from the given vacation entitlement year, payable as vacation pay on the paystub (vacation pay is not to be paid as regular pay).  Three weeks of vacation time off is equal to 6% vacation pay in Ontario; four weeks is 8%.

So for example, an employer and employer agree in their contract that the employee will receive 2 weeks of vacation in a year, and that employee can take their vacation before it has been fully accrued.  For the year 2023, that employee worked for 50 weeks, was off on vacation for 2 weeks, and the employee should have received 4% of all of their gross wages they earned in those 50 weeks of the year as vacation pay (on top of their regular wages).

Vacation pay is typically paid while the employee is on vacation, but an employer and employee can agree (in writing) to have vacation pay paid in a different way (like in a lump sum at the end of the year, on each pay stub, etc.).

Regardless of how much vacation time off an employee takes, an employer must provide the employee with all of their earned/accrued vacation pay.  For example, if an employee is entitled to 3 weeks of vacation time off and only takes 1 week off, they are still entitled to 6% of vacation pay on the 51 weeks of wages they earned from that vacation entitlement year.  In another example, if a 2-year employee was paid for working 13 weeks of the year (lets say they were on a protected leave of absence for 37 weeks), they are still entitled to 4% vacation pay on those 13 weeks of wages, and they are still entitled to take 2 weeks of vacation time off.

Vacation Pay Audits

Because vacation time and pay can be very comprehensive, we recommend employers review all vacation pay and vacation time once per year in a Vacation Pay Audit.

In a proper vacation pay audit, an employer would first collect and confirm all details about their team and vacation: employee tenure, amount of agreed vacation time off, amount of vacation taken, percentage of vacation pay owing, amount of Regular Wages paid (be sure to first understand what is and is not “Regular Wages” under the ESA), amount of “vacation pay” paid (listed on paystubs), any special circumstances (like carry-over) and the company’s vacation policy & payment system (like whether an employee can receive vacation time/pay before it has been accrued). 

The audit itself would cross-reference the theoretical amount of vacation pay owing to an employee (based on what they earned in the vacation entitlement year) against the actual amount of vacation pay paid to the employee. 

If there are amounts owing from the employer to employee, the employer must decide how to manage that accrued but unpaid vacation pay to the employee. 

If the employee has received too much vacation pay, the employer can decide on how to reconcile such an overpayment.

Conclusion

All employers should be mindful of vacation requirements relating to both time and pay.  By completing an annual vacation pay audit, an employer can ensure minimum legal compliance (with the ESA and also their employment agreements), and the employer can expect fewer claims of unpaid vacation pay from employees.

Feel free to contact a lawyer in FREEDIN & ROWELL’s Employment Group if you require assistance with the intricacies of vacation time and pay.

The post New Year, New Vacation Considerations appeared first on FREEDIN & ROWELL LLP.

Legislative Changes – Bill 79, Working for Workers Act, 2023 

In 2021, the Ontario Government introduced the first Working for Workers Act. This legislation prohibited non-compete agreements and required larger employers to create a written policy concerning disconnecting from work. The Working for Workers Act 2022 required employers to have a written policy concerning the electronic monitoring of employees.  The third iteration of the Working for Workers Act received royal assent on October 26, 2023, signaling its official adoption into law. The Bill’s provisions were enacted on the same day, significantly impacting businesses. These amendments encompass many areas within the Ontario employment framework, including the Employment Standards Act, 2000 (ESA), the Occupational Health and Safety Act (OHSA), and the Fair Access to Regulated Professions and Compulsory Trades Act, 2006.

Amendments to the ESA

• Mass Terminations: The amendments include certain remote workers in the mass termination rules, expanding the scope of protection for employees. These rules now provide for extended notice periods when 50 or more employees are terminated at an “establishment.” The revised definition of “establishment” includes an employee’s private residence if the employee conducts work exclusively from that location, thereby affecting termination entitlements in mass termination scenarios.

• Reservist Leave Expansion: The eligibility criteria for reservist leave are broadened to encompass situations where an employee requires treatment, recovery, or rehabilitation due to illness or injury resulting from their involvement in reservist activities. Furthermore, the service requirement for reservist leave eligibility has been reduced from three to two months.

• Temporary Help Agencies: Bill 79 would also strengthen protections for foreign nationals. First, it would amend the ESA by enhancing the licensing requirements for recruiters and those who use third parties to assist with the recruitment and employment of foreign nationals. The licensing requirements will focus on persons who directly charge fees prohibited under section 7 of the Employment Protection for Foreign Nationals Act, 2009 (EPFNA). Bill 79 also amends the EPFNA to provide that the Ontario Labour Relations Board (Board) would be required to reduce penalties associated with notices of contravention related to a person taking possession of or retaining a foreign national’s passport or work permit where the Board determines that the penalty is “excessive in the circumstances or is, by its magnitude, punitive in nature….”

Occupational Health and Safety Act

Under the OHSA, the maximum fine for corporations violating occupational health and safety regulations increased from $1.5 million to $2 million. These heightened penalties underscore the government’s commitment to safeguarding workplace safety. 

Fair Access to Regulated Professions and Compulsory Trades Act, 2006 

Regulated professions in Ontario now carry a duty to collaborate with the government to ensure that there are sufficient numbers of qualified professionals available as a matter of public interest. This responsibility seeks to address concerns related to workforce availability and competency in regulated professions. Professions that previously relied on “Canadian experience” as a qualification now must provide alternatives for registration. These changes open doors for a more diverse and inclusive workforce, minimizing barriers to entry.

Proposed Legislative Changes to the ESA

On November 6, 2023, the Ontario government unveiled a series of proposals aimed at enhancing transparency and accountability in the workplace. These forthcoming legislative changes include the disclosure of salary ranges in job postings, the regulation of artificial intelligence (AI) use in hiring processes, and a comprehensive revaluation of Non-Disclosure Agreements (NDAs) in cases of workplace sexual harassment and violence. These proposed changes will be a fourth update in the Working for Workers series, and we expect their announcement during the week of November 14, 2023. 

 
Disclosing Salary in Job Postings 

There are suggestions that there will be a consultation period on the specific requirements of the anticipated legislation. The government has hinted that it may only apply to positions below a certain yearly earnings threshold. The Ministry of Labour has intimated that $100,000 a year may be the appropriate threshold, though that number is subject to change.  

AI in Hiring

Employers will soon be mandated to inform job applicants when they employ AI tools and algorithms in their hiring processes. The extent of this disclosure requirement remains uncertain for the time being.  

NDAs, Workplace Sexual Harassment, and Workplace Sexual Violence

The government will also begin a consultation process geared at assessing potential restrictions on the use of NDAs concerning allegations of workplace sexual harassment and workplace sexual violence. Employers have faced criticism for using confidentiality clauses in settlement agreements when used in the context of incidents or allegations of workplace sexual harassment and workplace sexual violence.

While the Government of Ontario is interested in restricting the use of NDAs in workplace sexual harassment and violence cases, it has also expressed that any such restrictions must respect the rights of victims and survivors of sexual harassment and violence. This consultation on NDAs follows amendments made in 2022 to the Ministry of Training, Colleges, and Universities Act, which prohibited non-disclosure agreements relating to allegations that an employee of a post-secondary institution committed an act of sexual misconduct towards a student. 

Contact our Employment and Labour Law Department for more details on how to protect your business and prepare for these new changes.

The post Upcoming and Proposed Changes to Ontario’s Workplace Laws appeared first on FREEDIN & ROWELL LLP.

Employers who are federally regulated know the calculation of notice of termination is unique across Canadian jurisdiction.  The Canada Labour Code currently states that an employee who has worked at least three months receives a flat two weeks of notice or pay in lieu of notice (plus additional Severance Pay as mentioned below).

This is, however, being significant increased as of February 1, 2024.  All federally regulated employers should take note of this important change.

Updated Termination Notice

As of February 1, 2024, the new termination notice entitlements will be as follows:

• 2 weeks, if the employee has completed at least 3 consecutive months of continuous employment with the employer;
• 3 weeks, if the employee has completed at least 3 consecutive years of continuous employment with the employer;
• 4 weeks, if the employee has completed at least 4 consecutive years of continuous employment with the employer;
• 5 weeks, if the employee has completed at least 5 consecutive years of continuous employment with the employer;
• 6 weeks, if the employee has completed at least 6 consecutive years of continuous employment with the employer;
• 7 weeks, if the employee has completed at least 7 consecutive years of continuous employment with the employer; and
• 8 weeks, if the employee has completed at least 8 consecutive years of continuous employment with the employer.

As with other jurisdictions, the employer can decide whether the employee receives notice of termination, pay in lieu of said notice, or a combination of both.

The updates to the law also confirms that an employer must provide all of the following details regarding the termination entitlement, in writing, upon termination:

• vacation benefits,
• wages,
• severance pay, and
• any other benefits and pay arising from their employment with the employer as of the date of the statement.

This written statement must be given to the employee no later than 2 weeks before the effective date of termination, or on the date notice of termination is provided to the employee (if the notice period is shorter than 2 weeks or pay in lieu of notice is being provided).

CLC Severance Pay Remains Intact

The Canada Labour Code currently requires employers to provide “Severance Pay” to employees whose employment contracts are terminated with notice / without cause, but only where that employee has completed one year of service.  Employers must therefore provide Severance Pay of 2 days wages at the employee’s regular rate for each completed year of employment with the employer, but the minimum amount of severance pay employers must provide is 5 days of wages. This entitlement does not change in 2024.

How to Prepare for Changes

Every employer, and especially federally regulated employers, should take the time to review their contracts and ensure the termination clauses are up to date.  If an employment contract tries to restate what the minimum entitlements were in the past, to be applicable at some point in the future, those termination clauses may be completely unenforceable. With the start of a new school year, now is always a good time to review existing and template employment contracts to ensure the business is protected.

Contact our Employment and Labour Law Department for more details on how to protect your business and prepare for these new changes.

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In Celestini v. Shoplogix Inc., 2023 ONCA 131 (“Celestini”), the Ontario Court of Appeal confirmed that the common law doctrine of changed substratum applies in respect of a written employment contract that restricts or limits the amounts payable to a dismissed employee when there has been a substantial change in the employee’s role or duties.

In Celestini, the Plaintiff, Mr. Celestini, co-founded Shoplogix in 2002 and served as the company’s inaugural chief executive officer (“CEO”). On May 17, 2005, he stepped down as CEO to become its chief technology officer (“CTO”). He continued as CTO until March 2, 2017, when the company terminated his employment without cause after the company was acquired. Mr. Celestini signed an employment agreement with the company in 2005, where if he was terminated without cause, Mr. Celestini would receive his base salary and have his group health insurance continued for 12 months from the termination date. The company would also make a pro-rated payment for his annual bonus accrued up to termination.

Upon his termination, Mr. Celestini assumed that the termination provision from the 2005 contract was unenforceable as there had been material changes in employment duties without a change in his title. Therefore, he claimed he was entitled to common law damages for wrongful dismissal due to the breach by Shoplogix of the implied term to provide reasonable notice of termination.

The Motion Court (lower court) held that Mr. Celestini’s responsibilities fundamentally and substantially increased throughout his employment and that “[a]s such, the substratum of his [2005] contract of employment disappeared and implicated the changed substratum doctrine which left the notice terms in his contract no longer enforceable” and that “these responsibilities were substantial and far exceeded any predictable or incremental changes to his role that reasonably would have been expected when he started as CTO in 2005.” These changes included managing essential aspects of the company’s sales and marketing operations, business development, customer support and engineering program areas, creating a website for generating sales leads, and significant international travel for sales and development meetings. 

Mr. Celestini was therefore entitled to damages at common law for the failure of Shoplogix to provide reasonable notice of termination. The lower level judge found the appropriate notice period was 18 months (for a 12-year executive employee). 

The Court of Appeal agreed with the lower court decision, and agreed that the termination provision in the 2005 contract unenforceable. The Court of Appeal cited the Superior Court of Justice’s decision in MacGregor v. National Home Services, 2012 ONSC 2042 where Justice Perrel stated that “…with promotions and greater attendant responsibilities, the substratum of the original employment contract has changed, and the notice provisions in the original employment contract should be nullified”. The Court of Appeal also found that even without a change in the employee’s title, changed substratum still applied.

Implications for Employers

This decision further underscores the importance of written contracts being confirmed at every step of the way, for every employee – even CEOs and CTOs.

Even if there is no change in an employee’s title, if the employee’s duties and responsibilities substantially change, an employer should consider whether or not the employee’s most recent contract is still enforceable. In that case, they should provide a contract with a new benefit to act as fresh consideration and have the employee confirm that they continue to be bound by the agreement, notwithstanding any subsequent changes to the terms and conditions of employment. 

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