Top Employment Law Developments in 2013

The decisions outlined below gave rise to what we believe were the most noteworthy employment law developments of 2013. We discuss how these developments will affect employers in 2014.

1. Pension Benefits are Not Deductible from Damages for Wrongful Dismissal

In IBM Canada Limited v. Waterman,¹ the Supreme Court of Canada held that employers may not deduct earned pension benefits from wrongful dismissal damages. The Court found that pension benefits earned through years of service are a form of deferred compensation and retirement savings and should not typically be deducted from wrongful dismissal damages. It seems as though the Supreme Court left open the possibility for employers to expressly stipulate in the employment agreement, or in the pension plan, that wrongful dismissal damages and pension benefits will not be paid simultaneously. How a court would interpret such a clause in the future remains to be tested. 

2. Restrictive Covenants on the Sale of a Business: Generally Enforceable Unless Unreasonable

In Payette v. Guay Inc.² , the Supreme Court of Canada upheld five-year non-compete and non-solicit provisions in a contract arising from the sale of a business. The Court held that restrictive covenants entered into in the commercial context are generally enforceable unless they are unreasonable in scope. In contrast, in the employment context, these covenants are presumptively unenforceable unless their scope is reasonably limited in duration, in geographic coverage and in the nature of the prohibited business activity. The Court also found that certain non-solicitation covenants, unlike non-competition covenants, do not need to be geographically limited in order to be enforceable.

While restrictive covenants entered into on the sale of a business are given greater deference than those entered into in the employment context, they are not immune from judicial scrutiny. In Martin v. ConCreate USL Limited Partnership³ the Ontario Court of Appeal ruled that non-competition clauses and other restrictive covenants entered into on the sale of a business will be unenforceable if their duration is tied to the disposition of equity interest and if the consent of third parties is required for the disposition. The Court found that restrictive covenants whose duration depended on obtaining consents from third parties were unreasonable because they are indeterminate in time frame, with no fixed, outside limit.

3. Forfeiture of Deferred Compensation on Resignation: Not a Restraint of Trade

It is a customary term in many deferred compensation plans to require an employee to serve until the vesting date to be eligible for payment of the award. Such a term was challenged in 2013 in Levinsky v. The Toronto-Dominion Bank⁴ . The Ontario Superior Court of Justice confirmed that such a term does not constitute a restraint of trade and is indeed enforceable, affirming the incentive compensation practices of many employers in Ontario. 

4. Random Drug and Alcohol Testing: Prohibited Unless Intrusion on Privacy is Justified

In C.E.P., Local 30 v. Irving Pulp & Paper, Ltd,⁵ the Supreme Court of Canada found that random drug and alcohol testing in a unionized workplace is prohibited unless demonstrable safety concerns justify the testing. While the decision arose in a unionized context, the Supreme Court noted that all employers must balance workplace safety with human rights and privacy concerns. The Court stated that "…even in a non-unionized workplace, an employer must justify the intrusion on privacy resulting from random testing by reference to the particular risks in a particular workplace". The Court noted that parties are free to negotiate their own rules of drug and alcohol testing in collective agreements. In a non-unionized workplace, it would be prudent for employers who intend to impose random drug and alcohol testing to provide for this in employment contracts, and to be mindful of the potential human rights and privacy issues.  

5. Just Cause for Termination in the Investment Industry

In Saturley v. CIBC World Markets Inc.⁶ , the Nova Scotia Supreme Court found that CIBC had just cause to terminate an investment advisor who engaged in unauthorized discretionary trading. The Court found that the investment advisor’s conduct was improper, considerable and continuous and that CIBC had carried out a meticulous investigation, supporting a finding of termination for cause. While this is not new law, the case confirms that Canadian courts recognize the high degree of honesty and integrity required of market participants and that dismissal for cause is appropriate when there is a clear breach of the trust relationship that is essential in the investment industry.

6. Reinstatement Awarded By Ontario Human Rights Tribunal After a 10-Year Delay

In Fair v. Hamilton-Wentworth District School Board ⁷, the Ontario’s Human Rights Tribunal ordered the reinstatement of an employee after a 10-year absence from work, upon finding that her dismissal had been discriminatory. In addition to reinstatement into a suitable position, the Tribunal ordered payment for lost wages and out-of-pocket medical expenses, and general damages in the amount of $30,000 as compensation for injury to her dignity, feelings and self-respect. While reinstatement is not often awarded by the Tribunal, this case is an important reminder of the Tribunal’s jurisdiction to award such a remedy. 

7. Human Rights Damages Awarded in Wrongful Dismissal Litigation

An Ontario court awarded human rights damages in a wrongful dismissal action for the first time in Wilson v. Solis Mexican Foods Inc.⁸ The Ontario Superior Court awarded $20,000 in damages to a dismissed employee whose rights under the Ontario Human Rights Code had been violated when her employment was terminated for discriminatory reasons. Employers may see more human rights claims included in wrongful dismissal lawsuits in the wake of this decision.

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¹ 2013 SCC 70 (CanLII)

² 2013 SCC 45 (CanLII)

³ 2013 ONCA 72 (CanLII)

⁴ 2013 ONSC 4657 (CanLII)

⁵ 2013 SCC 34 (CanLII)

⁶ 2012 NSSC 300 (CanLII)

⁷ 2013 HRTO 440 (CanLII)

⁸ 2013 ONSC 5799 (CanLII)