Monthly Archives: March 2015

Contracting Out

By Eric Turkienicz, B.A. Hons., J.D.

                                                                 release

The Employment Standards Act (ESA) is important legislation. One of its primary roles is to protect employees who may be vulnerable to employers setting oppressive terms of employment. It sets minimum standards (hence the name) for terms of employment, subject to the exceptions contained in the ESA. Most notably, the ESA prohibits contracting out of those minimum standards so that an employer cannot take advantage of its higher bargaining position to get an employee to agree to below-standard terms of employment. For example, an employer and employee cannot agree that the employee will receive less than their minimum entitlements under the ESA if the employee is fired. But the actual definition of “contracting out” can sometimes be vague. Feldman Lawyers was recently successful in a unique case that shows this ambiguity:

 

The Case

Piero Cosentino v. Sherwood Dash Inc. involved a court Action by the former Director, Officer, and Employee of the Defendant for wrongful dismissal. The Plaintiff entered into an agreement where he explicitly agreed to resign as Director and Officer of the corporate Defendant. The Plaintiff executed a Release and was provided with a Record of Employment confirming the end of his employment. However, in the months following, the Plaintiff began the Action, contending that he did not resign as an employee and that he was entitled to receive pay in lieu of notice for wrongful dismissal. Our office acted as counsel for the Defendant employer in the lawsuit and took the following position:

 

  1. The Plaintiff was employed as a vice-president – an officer position – and when he resigned as officer, it was a necessary implication that his employment ceased as well.
  2. Many of the clauses and forms to the resignation Agreement suggested that the parties clearly contemplated the end of employment as part of the agreement.
  3. The Plaintiff signed a Release which explicitly released the employer from liability related to employment.

 

The Defendant moved for summary dismissal of the Action on the bases set out above. The Honourable Justice Mew agreed with the Defendant that the Plaintiff must have resigned as employee, as well as officer and director, since his only employment was as officer. The peripheral clauses to the agreement supported this argument and made it clear that the parties contemplated a “package deal” which involved a clean break of all professional relationships between the parties. The Court also agreed with the Defendant that the Release was an effective barrier to the Action. It is with this last point that this case engaged novel legal issues.

 

Releases and the ESA

The Plaintiff argued that the Release could not put an end to an Action for wrongful dismissal where the employee did not receive his or her ESA minimum entitlements. A release which held the employer harmless for all employment related liabilities, the Plaintiff argued, was an attempt to contract out of the ESA and therefore void. In response, our office argued that a release was fundamentally different from the kind of “contracting out” contemplated by the ESA.

Our office submitted that the cases of Better Beef Ltd. v. MacLean, 2006 CanLII 17930 (ON SCDC) and Bucyrus Blades of Canada Limited v. McKinley, 2005 CanLII 1491 (ON SCDC) applied to the situation. Those cases concerned employees who released former employers after the end of their employment from liability under the Pay Equity Act. Like the ESA, the Pay Equity Act is remedial legislation that also forbids contracting out of its terms. The Courts in those cases said that releases were different from bargaining away legislated rights as a term of an employment contract or other precondition of employment. It is different from an a priori imposition of oppressive terms of employment and the law typically does not interfere with parties’ ability to finally resolve their disputes through contract. By analogy, the Piero Cosentino v. Sherwood Dash Inc. matter was the same. Our office argued that a release is different from contracting out at the formation of or during the employment relationship because, after termination, an employee’s rights have crystallized. They have the ability to sue for wrongful dismissal or other entitlements and, by signing a release, are simply agreeing not to pursue a right they already have. The unequal bargaining position considerations no longer apply.

As stated, the Court agreed with our submission that a Release was not the sort of “contracting out” that the ESA prohibited and dismissed the Plaintiff’s Action. Even if the Plaintiff was terminated, the release barred the Action. The Plaintiff subsequently appealed the decision to the Court of Appeal which upheld the lower Court’s findings, primarily on the grounds that the Plaintiff had effectively resigned his employment. The Court of Appeal did not provide substantive comments on the ESA issue suggesting that the lower Court’s decision on the matter remains good law.

(Links to the decisions of Ontario Superior Court of Justice and Court of Appeal)

 

The Implications

Given the lack of prior cases dealing with this issue, the decision of the Honourable Justice Mew is an important one. It confirms the role of one of the most common aspects of the termination of an employee – the release. Employees who are terminated are often provided with a release and terms of their departure, such as payment of sums of money. The case suggests that an employee cannot negotiate or agree to terms of their departure after a termination and then turn around to sue an employer if those terms do not comply with the ESA. The kind of protections provided by the ESA may be wiped out by signing a release; the balance of power shifts from what it was pre-employment.  At the time of hiring, the employer has the upper hand and the ability to dictate terms which the employee, who wants the job, may be pressured to accept. At termination, the parties are, at the least, on more equal footing with the employee now having the ability to sue for her statutory and common law entitlements. Certainly, external pressures remain which may persuade a party to sign a release rather than launch a lawsuit, but these same pressures exist in many other non-employment contexts and Courts do not tend to look behind releases signed in those circumstances.

In sum, an employee should think very carefully before signing a release. As soon as they are terminated they have a host of options available to them; signing a release eliminates many of those options.

Our office is proud to have successfully defended this Action and to have participated in a novel legal issue. As a parting note, all readers are urged to remember that every case is different and the specific details of each one can drastically affect the legal conclusions which may be reached. The only unifying factor is that people who find themselves in employment related (or any) legal dispute are well advised to seek out a qualified lawyer with whom to discuss the matter and possibly retain to assist them.

 

Eric Turkienicz is a lawyer practicing at the Toronto firm of Feldman Lawyers. He maintains a broad civil and commercial litigation practice. The opinions contained herein are his own and do not necessarily reflect the opinions of other members of Feldman Lawyers. Nothing in this article should be taken as legal advice and it is for information purposes only. Any questions or comments on the article should be made directly to the author.