CH-19-20 Real Property – Canadian Business and the Law : Book Guide

This Document Contains Chapters 19 to 20 Chapter 19 Real Property Instructor’s Manual–Answers by Dorothy DuPlessis V. CHAPTER STUDY Questions for Review, page 500 1. What are the unique features of land as a form of property? Answer: Land is permanent and immovable, and the quantity is limited. 2. What is a fee simple? Answer: Fee simple is the highest level of land ownership. 3. What are the limits on an owner’s use of his land? Answer: There are numerous restrictions on land use imposed by statute law and common law. Examples are zoning regulations and the tort of nuisance. 4. How does a joint tenancy operate? Answer: It is a form of co-ownership in which the survivor inherits the interest of the deceased. 5. How can ownership of land be divided by time? Answer: The most common method of dividing ownership by time is through a lease in which the owner gives exclusive possession to a tenant for a defined period. 6. What is the purpose of registering title to land? Answer: There are two purposes of registering title: to enable landowners to give notice of their ownership and to enable others to determine the state of ownership. 7. What is a restrictive covenant relating to land? Answer: A restrictive covenant is a restriction on the use of land that is specified in the title document. 8. What are the benefits of an electronic registration system? Answer: Electronic registration creates a central database in each province, which provides improved access, is instantaneously updated, and saves storage costs. 9. What are the three stages in a transaction for the purchase and sale of land? Answer: The three stages are the agreement of purchase and sale, the investigation, and the closing. 10. What should a buyer of land investigate? Answer: A buyer needs to investigate many aspects of the property, such as the title to the property and legal claims against the seller. The buyer should also verify the boundaries of the land to make sure they are correct and conduct a physical examination to look for environmental hazards. 11. What is clear title? Answer: Clear title is demonstrated by a record of ownership that contains no problems to hinder transfer. 12. What happens at the closing of a property transaction? Answer: The purchaser makes final payment and the vendor formally transfers ownership. 13. What are the key features of a mortgage? Answer: A mortgage is a contract for credit and a means of providing the land as security for the loan. 14. What are a lender’s remedies if the borrower fails to make mortgage payments? Answer: The lender has four possible remedies, depending on the jurisdiction: suing the borrower, taking possession of the land, selling the land, and foreclosing. 15. What are the essential terms in a lease? Answer: Essential terms are identification of the parties, the premises, the rent, and the granting of exclusive possession to the tenant. 16. What is the remedy of distress? Answer: Distress is the landlord’s right to seize the tenant’s personal property from the leased property, sell the property, and apply the proceeds to the unpaid rent. 17. What is a periodic tenancy? Answer: A periodic tenancy is a lease that is automatically renewed unless one party gives proper notice to terminate. 18. How can the owner of land dispose of his interest? Answer: The owner can use the land as security or lease, transfer it, or sell it. Questions for Critical Thinking, page 500 1. Land registration determines property rights strictly according to the order of registration, unless there has been fraudulent activity. Should the system allow for late registration in exceptional circumstances, such as when a buyer fails to consult a lawyer or the lawyer neglects to register the documents? Can you think of other exceptional circumstances? Answer: It could be argued that the current rule is overly strict. If the first purchaser to register is unaware of a previous transaction, then the first registration is valid, whatever the reason for the failure to register the earlier transfer. Perhaps the courts should be willing to make exceptions in unusual circumstances, where the failure is not the fault of the person who did not register. Conversely, the system encourages purchasers to engage legal counsel to conduct the transaction properly. The underlying goal is to provide reliable records of land ownership and not leave registered documents open to challenge based on a “good” reason. Other exceptional circumstances might be major weather problems or errors in the documents (perhaps the wrong lot of land is described in the deed). 2. Can a new owner be liable to clean up contamination that was caused by a previous property owner? What about the liability of the prior owner whose activities caused the contamination? Why are there practical limitations on the effectiveness of environmental protection remediation orders and what can be done about this situation? Answer: Yes, environmental protection legislation in most jurisdictions can result in liability for contamination caused by a previous owner. This underlines the importance for prospective purchasers of conducting an environmental audit where there is concern for possible contamination. The limitations of remediation orders stem from the fact that sometimes the landowner is insolvent, in which case governments (taxpayers) may be left to foot the bill for clean-up. Another approach (such as in Alberta) is to require resource developers to make large security deposits at various stages of development to ensure that financial resources are in place to address future costs of remediation. Yet another approach is to pursue directors and officers, particularly where the business itself is no longer solvent. 3. Real property law originated as a means of protecting rights or resolving disputes between conflicting individual rights to property. Increasingly, broader uses of land in the public interest are coming into conflict with individual owners’ rights. Some examples are wind turbines that produce noise; cellphone towers that are unsightly and may emit radiation; and oil or natural gas pipelines that entail environmental risks. What factors may help to resolve this friction between the public interest and individual ownership rights? Answer: The original purpose of real property law has been seriously weakened over the years by a growing list of limits on ownership (see textbook page 476). Most of those limits encroach on ownership to benefit society at large. Environmental protection is an obvious area in which standards have changed and society demands more accountability by landowners. This delicate balance between private property rights and the public good perhaps led to the omission of property rights from the Charter of Rights and Freedoms of 1982. The challenge with encroachments, such as wind turbines and cellphone towers, is to balance the landowner’s right to generate revenue and the public benefit of wind energy and better phone coverage with the sociopolitical opposition. There is a need to establish a process that enables the airing of all points of view without resulting in excessive cost, time, and complexity. 4. In most cases, a lender has more expertise and experience in credit transactions than the borrower. Do the rules of contracts and mortgages allow the mortgagee (lender) too much protection at the expense of the mortgagor (borrower)? Should the lender bear some responsibility for a decision to lend that turns out to be a bad one? Does it matter that the mortgage is subprime and the borrower has been enticed and persuaded by the lender to borrow the money? Answer: The terms of a mortgage are, in theory, negotiated by the lender and the borrower. In reality, we know that normally the lender dictates the terms (see Chapter 26). If the borrower/mortgagor defaults on the loan, the lender has extensive rights to the proceeds from selling the land and the right to be fully repaid by the borrower personally. Presumably, this one-sided arrangement stems from the basic nature of the mortgage in many provinces as a transfer of ownership to the lender that will be returned to the owner only when the loan is fully repaid. It is possible that many borrowers fail to appreciate the significance of the mortgage transaction on ownership. Lenders would argue that they bear considerable risk and are forced to take responsibility if the land and the borrower’s other assets are insufficient to pay the balance. The argument for greater responsibility by lenders possibly overlooks the extensive scrutiny that mortgage applications receive. Presumably, only the best applications are successful. Subprime mortgages have turned the lending system on its head. Borrowers are enticed with attractive initial terms. Lenders sell the mortgages and avoid the risk of default. The mortgages are packaged into securities that are designed to combine and control the overall risk. As we know, the scheme was not successful. In the United States, millions of borrowers were granted loans with questionable chance of repayment, especially when favourable introductory terms expired and interest rates increased. See also SD 3. 5. The format and content of residential leases is largely dictated by legislation, while commercial leases are entirely negotiated by the parties, resulting in lengthy and complex documents. The difference is largely based on the assumption that commercial tenants can take care of themselves, while residential tenants are vulnerable to exploitation by landlords. Is this a valid assumption? Should there be more similarity in the processes that create the two types of leases? Answer: If the reason for regulating residential tenancies is related to a residence as basic shelter and therefore a necessity of life that cannot be left to the market, then commercial tenancies do not involve the same basic need. We can perhaps get along with one fewer business if suitable commercial premises cannot be rented on reasonable terms, but the same argument does not apply to a necessary residence. Conversely, if residential tenancies are regulated to address the bargaining advantage that landlords generally hold over tenants, that argument could be applied to many commercial situations. However, the party enjoying the bargaining advantage in commercial tenancies tends to depend on the state of the real estate market. It is more difficult to conclude that either party is permanently disadvantaged. Even in commercial leases, it is unlikely that all parties fully understand the complexities of the agreement. The terms are complex for good reason since they are designed to address a broad range of events and situations that may arise during the period of the lease. The parties will rely on their own experience along with the expert legal advice that they will undoubtedly need in such a transaction. Landlords or tenants involved in many leases may insist on standard terms if they have sufficient bargaining power over the other side. 6. Covenants in commercial leases generally limit the landlord’s ability to rent space to tenants whose businesses compete with those of existing tenants. In shopping malls, the anchor tenants have more bargaining power than smaller stores and so can better protect their business. In times of real estate downturn, small stores may fail at a higher rate. The covenants may limit the landlord’s ability to fill the vacant space. What are the implications of this situation? Are there remedies to better promote the full use of mall space? Answer: In a purely competitive environment, landlords could lease space to anyone they chose and those tenants could carry on whatever types of business that they wanted. Customers in shopping malls would benefit from this competition through more shopping opportunities. Of course, not all tenants are equal in terms of their size, bargaining power, and desirability to landlords. Mall owners want to create the optimum combination of stores and tenants to maximize the attractiveness of their malls to consumers. Overly flexible or restrictive non-compete clauses in leases may create conflicts. Landlords may need to avoid the inclination to fill empty space with any business that comes along. Landlords can only plan the concept and configuration of their malls carefully and exercise due diligence in the selection of tenants. Situations for Discussion, page 501 1. The Mellicks owned a farm that the Haywards were interested in buying. During negotiations, the Mellicks told the Haywards that the farm contained a total of 94 acres, with 65 acres under cultivation. The offer to buy described the farm as containing 94 acres but made no mention of acres under cultivation. The agreement contained a clause indicating that there were no conditions, representations, or agreements other than those expressly contained in the offer. The deal closed, and several months later, the Haywards discovered that there were only 51.7 acres of land under cultivation. Were the Haywards entitled to 65 acres under cultivation? [footnote deleted] Answer: This situation applies several principles of contract law to a particular and common type of contract: the agreement of purchase and sale of land. It illustrates the risk involved in making assumptions or relying on statements that are not set out in the agreement. The question can be addressed initially by emphasizing the importance of engaging legal advice during the negotiation of the deal and well before the agreement is signed. Many clients make the mistake of presenting their lawyer with a signed agreement, which, of course, may contain unfavourable terms that might have been avoided during negotiations. Once the agreement is signed, the terms are set. In this situation, the Haywards and their lawyer should have made the cultivated acreage an express term of the agreement. The most prudent, but expensive, course of action would have been to engage a land surveyor to determine the total area and the portion that was cultivated. They at least need to appreciate the significance of the clause excluding anything not expressly stated. The question also invites a discussion about the parol evidence rule (see Chapter 7). Although allowing the Haywards to rely on the various statements preceding the agreement might have produced a fairer result in this case, it would introduce uncertainty in many situations. What proof of oral statements would be required? What if the statements contradicted the written agreement? How could the parties’ real intentions be figured out? The rule excluding outside evidence may make more sense after a discussion about the uncertainties that it prevents. In Hayward v Mellick (1984), 26 BLR 156 (Ont CA), on which this situation is based, the court found that the written agreement was for the purchase and sale of a 94-acre farm with two fields under cultivation. The Haywards’ belief that there were 65 cultivated acres and their decision to buy were influenced by the erroneous information from Mellick and his agent; however, the agent had no authority from Mellick to provide the information. The informal way in which Mellick confirmed the agent’s statement about cultivated acreage was not sufficient to make it a term of the agreement. Mellick was negligent in making the statement without personal knowledge or measurement, but the contract contained an “entire agreement” clause, which excluded all representations (such as the one concerning acres under cultivation) from the contract. Therefore, the Haywards were limited to the terms of the agreement, which entitled them to 94 acres but made no provision for land under cultivation. 2. Campbell’s business is in financial difficulty. Technology is advancing quicker than Campbell can move. She is faced with a gradual reduction in business operations and a related need for less space. She has 20 years left in the lease of her business premises but cannot afford to pay the monthly rent. How should Campbell approach her landlord? What are her legal options? Is the situation different if Campbell owns her business premises subject to a mortgage on which she cannot make the payments? How should she approach her banker? What are her legal options? Answer: Campbell ought to approach her landlord to request a renegotiation of her lease. She should make her plea that the current terms are no longer feasible for her business and without renegotiation, her business may fail, leaving the landlord with no rent. If her pleas are refused, Campbell can then consider her legal options. She has agreed to the long-term lease, which now appears to be ill advised. That does not alter the enforceability of the lease. Her options are to stay put and hope for the best, break the lease and accept the consequences, or attempt to assign the lease to another tenant or sublet the portion of the space that she no longer needs. The lease may restrict her ability to assign or sublet, but the landlord is likely to be willing to concede whatever is needed to obtain a tenant with healthier financial prospects than Campbell. If Campbell is subject to a mortgage rather than a lease, she is still faced with an unavoidable obligation. She can approach her bank for leniency if she merely needs some breathing space. If the downturn in her business is permanent, she should consider renting out her unneeded space to a tenant or perhaps selling the property and moving elsewhere. Any sale of the property would be subject to the mortgage, so she would need to get a price high enough to pay out the mortgage and finance alternative space. She would likely be required to pay an interest penalty for the early repayment of the mortgage. The other possibility is to find a purchaser who is prepared to assume the existing mortgage. The bank’s agreement would be required and Campbell might still be at risk if the purchaser were to default after taking over the mortgage. 3. Bayshore Trust granted a loan to Assam based on a mortgage for $210 000 with interest at 14 percent for a one-year term. The monthly payment was $2540. At the end of the term, Bayshore renewed the mortgage for another year at 14.5 percent. During that year, Assam defaulted and Bayshore sued Assam, who argued that Bayshore induced him into a state of financial disaster by granting a mortgage with monthly payments he could not possibly make. Assam alleged that Bayshore should never have lent him such a large sum of money. At the time of the mortgage, Assam’s annual income was $28 000. Who should decide whether a lender such as Assam can make payments on a loan? Should Bayshore be required to do anything more than protect its own interest in the mortgage? Would the outcome be different in today’s subprime mortgage environment than when this case came to court in 1992? [footnote deleted] Answer: This case confirms the application of the principle of freedom of contract. If the borrower chooses to accept what might be considered unwise terms, there is apparently no recourse. The case also illustrates the need for lenders, such as Assam, to seek independent advice rather than to rely on the bank to look after his interest in addition to its own. In the case this situation is based on, Bayshore Trust Company v Assam, [1992] OJ No 715 (Gen Div), the court found that Assam was not vulnerable or dependent on Bayshore. He was educated, understood the transaction, and had legal advice. There was nothing about the dealings between Assam and Bayshore to take it beyond a normal commercial transaction. The law allows and requires the commercial lender to make its own decision. It is difficult to think of a better mechanism than the parties working out a deal that is presumably palatable to both. Note that consumer protection legislation may produce a different result when the loan is made to a consumer rather than to a business (see unconscionability in Chapter 8 and regulation of consumer credit in Chapter 26). We would expect lenders to protect themselves and be reasonably assured that the borrower has or will have the cash flow to make the required payments. Otherwise, we would not expect the loan to be granted. However, that is likely a different issue from the advisability of the loan for the borrower’s business. Whether we should interfere in commercial negotiations is unclear, although there are judicial rumblings of a broad duty of good faith (see Chapter 7). In the subprime mortgage environment, the courts may scrutinize the conduct of the lender more carefully. For example, was the lender making a genuine loan in the normal course of business or merely collecting loans to be handed off to others for securitization? If it was the latter, the courts might be more sympathetic to such lenders as Assam. 4. Shoker engaged a real estate agent to find a property suitable for use as a trucking terminal. The agent found a property that was zoned “highway commercial.” Its permitted uses included a retail store, car and truck sales agency, commercial garage, parking lot, and restaurant. Shoker signed an agreement to buy the property, which contained two conditions—the buyer would confirm the zoning with the municipality, and the buyer would exercise due diligence to ensure that the property was suitable for his intended use. The agreement did not specify a trucking terminal as the intended use. Shoker discovered that the zoning would not permit the operation of a trucking terminal. He gave notice to terminate the agreement. The seller alleged breach of contract and kept the deposit of $50 000. Is the agreement enforceable by the seller? How could the agreement have been more clearly written? [footnote deleted] Answer: This situation is based on the case Shoker v Orchard Garden Markets Ltd (2007), 62 RPR (4th) 81 (Ont Sup Ct J). In that case, the court ruled that the buyer’s notice of termination was not justified and the seller could keep the deposit. The decision was based on three key findings: • The buyer’s agent prepared the agreement, so any ambiguities are interpreted against the buyer. • The two conditions were subject to an objective standard since the agreement did not suggest otherwise; therefore, the buyer was required to exercise due diligence regarding the second condition. • The first condition overrode the second, since the first listed certain intended uses for the property. The agreement could have been more clearly written by specifying the ability to use the property as a trucking terminal as a condition of the sale. The buyer could have attempted to gain more flexibility by specifying that a subjective standard should apply to the conditions. Of course, such an agreement is complex and should be drafted with legal assistance rather than by a real estate agent alone. The case is somewhat analogous to SD 1, in which the key term—the cultivated acreage—was omitted from the agreement. 5. Bresson bought a piece of land for commercial development for $3 million. He was assured that it contained an unlimited supply of water from an existing well. When construction began, it was discovered that the water was unusable because of contamination in the soil caused by leakage of gasoline from underground tanks located on the adjacent property. What investigation should Bresson have done before the deal closed? Was the seller obligated to disclose the state of the land? Is the owner of the adjacent property responsible? [footnote deleted] Answer: This situation reinforces the importance of the agreement of purchase and sale. An assurance of lots of useable water is likely unenforceable. Bresson should have provided for useable water in the agreement. In the investigation stage, he should have verified the water supply and the state of the land. It is up to the purchaser to ensure that the land is suitable and acceptable in all respects. If the seller was aware of the soil contamination, then an obligation to disclose is suggested. However, Bresson could have done testing and investigation of the soil. Perhaps the issue is knowledge and responsibility for disclosure of the use of the adjacent property. Underground storage tanks are notorious for leakages. In Bresson v Ward (1987), 79 NSR (2d) 156 (Co Ct), on which this situation is based in part, the purchasers’ claims concerning the water failed. There was no fraudulent misrepresentation because no statements were made about the absence of any defect in the well. The statements were not false or recklessly made and did not induce the purchasers to enter the contract. There were no statements that amounted to collateral warranties. In Edwards v Boulderwood Development (1984), 64 NSR (2d) 395 (CA), on which this situation is based in part, the land was unsuitable for building because half of it was a bog covered with fill. The Court of Appeal considered the findings of the trial judge: • The seller was 70 percent responsible for its negligent representations that the lot was solid and suitable for building, on which the buyer relied. • The engineer was 20 percent responsible for giving negligent advice about the condition of the land when consulted by the buyer. • The concrete construction contractor was 10 percent responsible for failing to examine the site with greater care in the face of obvious instability. The Court of Appeal ruled that caveat emptor applied in the absence of fraud or a fundamental difference between what was bargained for and what was received. In any event, the seller’s duty ceased when the buyer hired the engineer as a general contractor. Liability was assessed as 60 percent on the engineer and 40 percent on the concrete construction contractor. 6. Perkins leased space for two stores from Plazacorp. A few years ago, an awning across the front of the stores was removed, causing rainwater to seep into one of the stores and damage carpets and inventory. Plazacorp fixed the leak after repeated complaints by Perkins over a period of time. The second store was affected by sewage backups that originated in the common area of the property. In an attempt to prompt Plazacorp to remedy these situations, Perkins ceased paying rent. When Plazacorp sued for the rent arrears, Perkins counterclaimed for the cost of damage and repairs to the two stores. Was Perkins entitled to stop paying rent? Is Perkins’ counterclaim valid? On what does the answer depend? [footnote deleted] This situation is based on Plazacorp Retail Properties Ltd v Perkins Health and Safety Ltd, 2007 NSSM 30. Normally, a tenant cannot withhold rent regardless of the landlord’s breach of terms in the lease, unless the landlord’s breaches render the premises unusable. In this case, the Small Claims adjudicator allowed the tenant’s counterclaim for damages and permitted it to be offset against the unpaid rent. The result was a net claim in the tenant’s favour. The landlord was responsible for negligence under the terms of the lease. The problems with both stores were created by the landlord, so it was well aware of the damage but did nothing to fix the problems. 7. Dewey entered into a commercial lease with defendant mall owner Pike. Dewey asserted an exclusive right to sell Canadian souvenirs under the terms of the lease and that Pike was permitting another tenant to sell souvenirs in breach of Dewey’s rights. After Pike rejected Dewey’s complaint, Dewey withheld rent for a period of time. Pike eventually demanded payment of approximately $100 000 for the unpaid rent and when Dewey failed to pay, Pike commenced distraint proceedings and sold some of Dewey’s goods but realized only about $60 000 from the sale. Pike then served a notice of termination of the lease, relying on the balance of unpaid rent as the default. Was this recourse available to Pike? How should Pike proceed? Answer: This discussion question is based on Delane Industry Co. Limited v. PCI Properties Corp., PCI Waterfront Leasing Corp., 2014 BCCA 285. The difficulty for Pike is that by electing to take distraint proceedings, it in effect affirmed the lease and waived the previous breaches of the lease that had led to the distraint. Once Pike completes its distraint proceedings (as it now has), it can sue for the outstanding rents but in order to terminate the lease, there must be a fresh breach and Pike would have to comply with the notice periods set out in the lease. 8. Greenwood rented office space to Evergreen for five years, with an option for renewal of three or five years. In the second year of the lease, Greenwood informed Evergreen that it could not comply with its obligations under the lease beyond the end of the current year. Greenwood planned to demolish the building and erect a 21-storey office tower. Greenwood offered Evergreen preferential treatment in the new building when it was completed. Evergreen refused to move, claiming that the current building had architectural value and should be preserved. The lease did not include clauses dealing with demolition or the landlord’s right to resume possession during the term of the lease. How does this situation illustrate rights of ownership and landlord–tenant relations? How could the dispute be resolved? [footnote deleted] Answer: In such situations as this, property rights may come in conflict with contractual rights. The issue is which takes precedence. Under a lease, a tenant not only has contractual rights but also receives an interest in land. The landlord, as the title owner, also has property rights in the land but has agreed to the terms and conditions of a contract. When do the rights of a landlord as an owner trump the rights of a tenant? Is the tenant entitled to damages only for the loss or does it have a right to remain on the premises and hold the landlord to the strict terms of the lease? Would damages be sufficient to cover the tenant’s loss? The courts have said that in deciding such issues, the equities between the parties should be taken into account. The courts have to look at the uniqueness of the property and the relative hardship of holding the lessor to the strict terms of the lease. Only after doing so should a court make a decision as to whether the demise aspects of the lease should be given more or less significance than the contractual ones. In the case on which this situation is based (Evergreen Building Ltd v IBI Leaseholds Ltd, 2005 BCCA 583), the arguments related largely to the remedy available to the tenant as a result of the landlord’s attempted eviction. Was the tenant entitled to an injunction or merely damages? The tenant won at trial but lost on appeal. Leave to appeal to the Supreme Court of Canada was granted but the appeal was later abandoned. See also 2006 BCCA 185, 2008 BCSC 235, and 2008 BCCA 275 for subsequent decisions regarding this dispute between the same parties. Chapter 20 The Employment Relationship Instructor’s Manual–Answers by Dorothy DuPlessis V. CHAPTER STUDY Questions for Review, page 533 1. Which level of government has jurisdiction to make laws in the area of employment? Answer: Both the federal and provincial governments have jurisdiction to make laws in the area of employment. 2. What are the tests for determining the difference between an employee and an independent contractor? Why is it important to distinguish between an employee and an independent contract? Answer: The tests are the degree of control, ownership of tools, chance of profit, risk of loss, and degree of integration. It is important to distinguish between an employee and an independent contractor because it effects the legal obligations of different parties. An employee has rights under employment laws whereas an independent contractor does not; holiday pay, vacation pay, notice or pay in lieu of notice are provided under the employment statutes to employees but not to independent contractors. In addition, there are tax implications for the employer in the employer–employee relationship. The employer is liable for withholding tax in an employment relationship, whereas independent contractors must take care of the taxes themselves. 3. Define vicarious liability and negligent hiring. How do they differ? Answer: In vicarious liability, an employer is liable for the torts of employees committed in the course of employment. Negligent hiring occurs when an employer is liable for being careless in hiring an employee who commits a wrong. Vicarious liability is a form of strict liability whereas negligent hiring requires proof that the employer was at fault. 4. The human rights Acts attempt to prohibit discrimination in employment. What is meant by “discrimination”? Answer: Discrimination usually means to treat someone differently based on a prohibited ground, such as sex, race, or religion. 5. What is the difference between systemic and adverse effects discrimination? Answer: Systemic discrimination is discrimination that results from the combined effects of many rules, practices, and policies. Adverse effects discrimination is discrimination that occurs as a result of a rule that appears neutral but in its effects is discriminatory. 6. What is a bona fide occupational requirement? Give an example. Answer: A BFOR is a discriminatory practice that is reasonably necessary for a safe and efficient working environment. An example is requiring a truck driver to have a driver’s licence. 7. What is the “duty to accommodate”? Answer: It is the duty of an employer to modify rules, practices, and requirements to meet the needs of individuals who would otherwise be subjected to discrimination. 8. What is the purpose of the federal Employment Equity Act, SC 1995, c 44? Answer: The federal Employment Equity Act targets the underrepresentation of women, Aboriginal peoples, people with disabilities, and visible minorities in the workforce. 9. Do employees have fiduciary obligations? Explain. Answer: Some employees do, depending on the position held by, the duties and responsibilities, the nature of the business, and the organizational structure. 10. Do employment contracts need to be in writing to be enforceable? What are the advantages of a written employment contract? Can you think of any disadvantages? Answer: Employment contracts do not have to be in writing to be enforceable. Advantages include certainty and flexibility. Disadvantages might be that any ambiguity is interpreted against the employer and parties may be stuck with what has been written. 11. What is the purpose of employment standards legislation? Give an example of an employment standard. Answer: The purpose is to set out minimum standards in the workplace. Examples are hours of work, vacation pay, and statutory holidays. 12. Explain how the freedom to contract in employment has been affected by legislation, and give examples. Answer: Legislation has been passed that requires the parties to adhere to certain practices. Examples include health and safety requirements, employment standards, and employment insurance. 13. What is the purpose of workers’ compensation legislation? Answer: The purpose of the legislation is to address accidents and injuries in the workplace by providing a no-fault insurance scheme. 14. Would displaying a nude picture be an example of sexual harassment in the workplace? Explain. Answer: It could be an example of sexual harassment, if it is considered unwelcome conduct that detrimentally affects the work environment. 15. What is the purpose of pay equity? Answer: The purpose is to ensure male and female employees receive the same compensation for performing the same or substantially similar work. 16. Is alcohol and drug testing in the workplace permissible? Explain. Answer: Employers have a legitimate interest in having a safe workplace. Sometimes they have attempted to achieve this goal through drug and alcohol testing of their employees. Such testing, however, is contentious as it is prima facie discriminatory. Employers can nevertheless justify discriminatory rules if they can meet the three-part test in the Meiorin Case. 17. Do employees have a right to privacy? Explain. Answer: The right to privacy is not a straightforward issue. Various pieces of legislation provide for privacy rights in particular circumstances (e.g., the federal Privacy Act). In situations when there is not an expectation of privacy, an employer may be entitled to monitor employees. 18. Describe how unionized employees enter into employment contracts. Answer: Unions use what is referred to as collective bargaining agreements, which are contracts that apply to all employees in the bargaining unit, regardless of their having voted or not. The union and the employer bargain in good faith. Both the federal and provincial governments have enacted labour or industrial relations legislation that guarantees the right of employees to join trade unions. The Acts apply to most employees, but certain employees—namely, managers and those in specific occupations, such as domestic workers and farmhands—are excluded. The legislative enactments provide for a certification process by which the union is recognized as the bargaining agent for a group of employees. An employer, however, can voluntarily recognize the union as the bargaining agent for the employees without a certification process. The certification process is basically a method by which the Labour Relations Board approves the union as the employees’ representative on the union being able to show that a majority of the employees in the bargaining unit want the union to represent them. Questions for Critical Thinking, page 533 1. Recently, Yahoo Inc. changed its telecommuting policy that allowed employees to work from home. Employees are now required to be physically present at work. Employees have been told that they would be fired if they did not show up at the workplace. The change of policy provoked much debate among employees and the general public about working from home. What are the benefits associated with telecommuting? What are the problems with working from home? Are there any legal bases for Canadian employees to challenge Yahoo’s actions? Explain. Answer: “Some of the potential benefits of telecommuting include: • Savings in employers’ overhead; • Reduced employee work-life conflict; • Increased employee engagement; • Increased employee loyalty; • Reduced turnover; • Attraction and retention of talent; • Reduced absenteeism; and • Accommodation of employees who would not otherwise be able to work” “Some of the problems of telecommuting include: • Exposure to distractions at home; • Requirement for a high level of employee discipline; • Loss of face to face contact with supervisors; and • Loss of social interaction and collegiality with co-workers” The employees may be able to challenge Yahoo’s actions if the entitlement to work from home was an express term of an employment contract or where there was an implied term for such entitlement. Such entitlement may arise from implication where the nature of the workplace and the position make telecommuting necessary, physical presence is not a genuine occupational requirement, the employer enabled telecommuting through provision of remote access and/or other employees in similar positions are allowed to work from home. Aside from a possible contractual challenge, employees may argue that the telecommuting is protected under human rights legislation. The possible argument is that the workplace policy that prevents telecommuting interferes with childcare obligations and hence, is discrimination on the basis of “family status.” Presumably, this argument would only be valid where there was no other option for childcare as opposed to simply being a choice by the employee. Also see Devaney v ZRV Holdings Limited [2012] HRTO 1590, where the human rights tribunal ruled that it was discriminatory for the employer to refuse to permit the employee from telecommuting on the basis of family status. The employee needed to work from home on a flexible schedule to care for his ailing mother. Source: Daniel Lubin & Aaron Rousseau, “Challenging the ‘right’ to telecommute,” The Lawyers Weekly (17 May 2013) 10; Mark Hamilton, “Yahoos of the world unite—are employees entitled to work from home?” Richards, Buell & Sutton LLP (20 March 2013), online: Mondaq . 2. Some employers such as Hooters bars require their female employees to be “slim and fit” or “skinny.” Is such a requirement discriminatory in Canada? On what basis? Could “looks” qualify as a bona fide occupational requirement? Do you think Canadian human rights statutes should be amended to prohibit discrimination on the basis of weight, height, or physical appearance? [footnote deleted] Answer: There is no Canadian legislation that prohibits discrimination based on appearance. The human rights legislation does not prohibit discrimination on the basis of physical appearance, weight, attractiveness, etc. However, if the discrimination can be connected to a protected ground such as physical disability, race, sex, age, or religion then human rights legislation will apply. It seems that some aspect of “looks” may qualify as a BFOR. For example, if Disney were hiring for “Cinderella” character then how potential employees look may very well be a BFOR. It is interesting to note that in some American jurisdictions, e.g., Michigan, the law prohibits discrimination on the basis of weight and height. See: David Doorey, “Can Hooters require servers to be ‘slim and fit’?” Doorey’s Law of Work Blog (accessed 8 April 2015). 3. The distinction between an independent contractor and an employee is not always clear. What steps can be taken by an employer who wishes to engage independent contractors to ensure that its workers will be classified as independent contractors? What are the risks associated with having “independent contractors” classified as employees? Answer: The first step that an employer should take to ensure that workers will be classified as independent contractors is to have a clause in the agreement specifically setting out the relationship between the parties. However, this is not sufficient. An employee masquerading as an independent contractor is still an employee. The tests set out in the textbook (page 490) need to be considered. The following factors gleaned from the various tests should be reviewed to ensure that they are indicative of an independent contractor relationship: • Does the worker provide his or her own equipment? If the worker is provided with equipment by the company, the worker should lease the equipment by paying a monthly fee for the use of the equipment. This is often done in hair salons or real estate offices. • Can the worker hire helpers? • Can the worker contract work to other contractors? • Can the worker can provide services to more than one payer? This is often a major determining factor as it is rare that a true employee works for more than one employer doing the same work. • Is the worker part of the employer’s organization? • Does the worker have to report to the work site each day? • Has the worker made a financial investment? To what extent does the worker manage that investment? • Is the worker exposed to personal financial risk in carrying out the work? • Is there an opportunity for profit or risk of loss to the worker? • Who is liable for damages or for the quality of the work? • Does the worker have to report if he is absent from work, and is the worker required to submit reports each day or week? • What are the worker’s terms of payment and production obligations? • How is the worker hired or terminated? The risks of having an independent contractor classified as employees are as follows: • Obligations: employers have obligations with respect to employees that they do not have with respect to independent contractors For example, employers must withhold taxes and deduct pension contributions from employees. • Liability: an employer is vicariously liable for the actions of an employee committed in the course of employment but is generally not liable for the actions of independent contractors. • Rights: employees have certain statutory and common law rights that independent contractors do not have. For example, an employee can sue for wrongful dismissal but an independent contractor cannot. 4. Mandatory retirement has been eliminated in all jurisdictions in Canada with the exception of bona fide occupational requirements and in some provinces bona fide retirement or pension plans. Is ending mandatory retirement good for business? What are the advantages and disadvantages of mandatory retirement policies? How might employers require their employees to retire at age 65 without breaching applicable human rights laws? Answer: Whether ending mandatory retirement is good for business may depend to some extent on the type of business. Retirement is big business for the banking industry—“Freedom 55,” registered retirement savings plans, and so on. The banks love the concept of retirement. For many businesses, however, the end of mandatory retirement means the opportunity to retain highly skilled employees with a lifetime of experience. This is particularly important in light of predicted labour shortages as the baby boomers retire. The advantages of the abolition of mandatory retirement are that it helps deal with workforce shortages, real and projected, and it allows for the continuation of work by skilled, experienced people. Abolition is also advantageous for a variety of other reasons, including giving an opportunity to people to acquire pension benefits, reducing the drain on public and private pension plans by people working longer, helping those who cannot afford to retire, and bring Canada in line with other countries, such as the United States, that have banned mandatory retirement, and ending a discriminatory practice. The most often cited advantage of mandatory retirement is that it provides job opportunities for younger workers and reduces their unemployment rate. Another less frequently cited advantage of mandatory retirement is that employers do not have to terminate less productive older workers based on performance or competence problems. The employer simply can wait until the employee retires. See Virginia Galt, “The end of mandatory retirement: Now what?” The Globe and Mail (9 December 2006) B12; Grant Cameron, “Changing the rules, and perceptions,” The Lawyers Weekly (6 July 2012) 10. 5. An employer has a duty to accommodate the special needs of a physically or mentally disabled employee unless the accommodation causes undue hardship. What is the duty to accommodate? What are some examples of accommodation? What is undue hardship? What are some factors to consider in determining undue hardship? What are some factors not to consider in determining undue hardship? Is accommodation “special treatment”? Is it fair that one person gets “special treatment” over another? Answer: The duty to accommodate is the obligation to eliminate or change rules, policies, practices, and behaviours that discriminate against persons based on group characteristics, such as physical disability, race, or religion. In the case of a person with a physical disability, this often means removing physical barriers by building a wheelchair ramp, purchasing desk chairs with specialized supports, having larger workspaces, modifying monitor settings, accessing specialized software, and so on. Other examples of accommodation are the modification of job duties, a temporary transfer to another position, and leaves of absence. Undue hardship is the limit beyond which the employer is not expected to accommodate. To prove undue hardship, an employer needs to show that accommodation creates unmanageable workplace issues. The factors to consider in determining undue hardship will vary from case to case, but they are essentially health, safety, and costs. Other factors are the type of work performed, the size of the workforce, the interchangeability of job duties, and the impact on employee morale. Factors not considered are customer or public preferences that are based on prejudice or stereotyping, threatened grievances by other employees, and discriminatory objections. Accommodation is not “special” treatment. Equal treatment does not mean identical treatment. It means sometimes treating people differently so that they have equal access to, for example, employment. A rule that all employees must stand when greeting customers will deny employment to employees in wheelchairs. Excusing an employee form this rule lets her stay on the job. This does not mean that this employee is getting special treatment. She is getting the treatment that allows her to have full participation in the workforce. (Source: Canadian Human Rights Commission, “Duty to accommodate” (18 August 2011) at .) In Hydro-Quebec v Syndicat des employees de techniques professionnelles et de bureau d’ Hydro-Quebec section locale 2000 (SCFP-FTQ), 2008 SCC 43, the Supreme Court of Canada considered the issues of duty to accommodate and undue hardship. It noted that the purpose of accommodation is to ensure that persons who are otherwise fit to work are not unfairly excluded when working conditions can be adjusted (without undue hardship to the employer). It said the employer does not have a duty to change working conditions in a “fundamental” way but does have a duty to attempt to arrange the workplace to enable the employee to do his or her work. If the business can, without undue hardship, offer the employee altered working arrangements to ensure the employee can do his or her work, it must do so. If, however, the proper operation of a business is hampered excessively despite the employer’s accommodation efforts, the employer will have demonstrated undue hardship. 6. Social media sites such as Facebook, Linkedin, and blogs provide a great deal of information about job candidates. Should employers access information on these sites in conducting background checks on job candidates? Should employers ask candidates to provide their log-in information? Why or why not? Answer: Accessing social media sites to gather information about perspective employees creates legal risks relating to privacy and discrimination. Privacy: Legislation in Alberta, British Columbia, Quebec (Manitoba’s legislation is not yet in force), and the federal jurisdiction regulates the collection, use, and disclosure of employee personal information in the private sector. The provisions of the privacy legislation heavily restrict the collection, use, and disclosure of personal information without consent. Information on social media sites is not likely to be considered publicly available for purposes of privacy legislation so would fall within the restrictions. Obtaining the prospective employee’s consent to a social media background check only provides some protection for the employer as the employer must still demonstrate that there was a reasonable business purpose to collect information. A reasonable business purpose might be that the information sought could not be provided through another method. Otherwise the employer, by accessing information on social media sites runs the risk of violating privacy legislation. Discrimination: Employers may not make hiring decisions based on protected grounds of discrimination in the absence of a bona fide occupational requirement. The danger of obtaining information from social media sites is that the social media site may provide information that may not be used by the employer in the hiring decision, that is, information about a disability, religion (affiliation or membership in a religious organization), marital status (disclosure of a spouse), etc. If a prospective employee believes that the employer has used information that relates to one of the protected grounds, it could be the subject of a human rights complaint. The Ontario Human Rights Commission has indicated that employers should not ask job applicants for access to social media sites because “employers could face a finding of discrimination even if there is no intention to discriminate. The fact that improper questions have been asked is sufficient to prove discrimination, even if the applicant is ultimately given the job” Ontario Human Rights Commission (23 March 2012), online: . Also as noted above, employers may find it difficult, even with consent, to meet the requirement that collection and use of personal information is reasonable when the information comes from social media sites. For example, even if a job applicant gives an employer permission to access her online dating profile, this collection would likely be found to be unreasonable for the purposes of evaluating the individual’s qualifications for the job. See: Terri Susan Zurbrigg and Anne Cote, “Click with caution: What employers should know before conducting social media background checks on prospective employees,” Field LLP (3 July 2012), online: Mondaq . Situations for Discussion, page 534 1. Connor Homes operated foster homes and group homes for children with behavioural problems. To carry out its services, Connor Homes hired a number of childcare workers including Marie Allaire. Prior to starting work with Connor Homes, Allaire signed a contract specifying that she was working as an independent contractor. Subsequently, she reported her income from the contract for income tax purposes as income earned as an independent contractor. A dispute arose as to whether Allaire was an independent contractor or employee. An investigation of Allaire’s work showed that Connors Homes drafted and issued its own Policies and Procedures Manual, based on the requirements of the provincial legislation relating to child and family services. This manual defined and dictated the procedures to be followed by all childcare workers with respect to the provision of services within the homes. Connor Homes also controlled Allaire’s duties on a day-to-day basis and provided guidance and instruction to her on how to manage difficult situations with clients. Allaire could adjust her pay through her hours of work, however Connor Homes scheduled the actual hours of work. She could also refuse certain schedules which were offered to her. She was required to have her own cell phone and have access to a computer. She was also expected to use her own motor vehicle to access the sites where her work was performed and to occasionally transport some of the children. [footnote deleted] Why does it matter if Allaire is classified as an employee or independent contractor? Is Allaire an independent contractor or an employee? Answer: Whether a worker is classified as an employee or independent contractor is important for a number of reasons including: • If the contractor is really an employee then the Income Tax Act will apply, which means the employer should have withheld and remitted income tax. The employer may be liable to pay these taxes plus be subject to fines; • Employment standards legislation will apply to the worker, which means the worker is entitled to vacation pay, minimum wages, overtime, parental and maternity leave, and notice of termination or pay in lieu; • The Employment Insurance Act and Canada (Quebec) Pension Plan Act will apply in which case the employer can be liable to pay unpaid contributions, penalties, and fines; • The worker will have common law claims for wrongful dismissal; • The employer is liable for the wrongful acts of the employee committed in the course of employment; the employer is not typically liable for the wrongful acts of the independent contractor The Federal Court of Appeal applied a two part test: is there a mutual understanding or common intention between the parties regarding their relationship? and do the pertinent facts support that the worker is providing services as a business on her own account? On the facts the court determined that although the parties intended the relationship to be that of independent contractors, Allaire was, in fact an employee. The degree of control exercised over her work (she was required to abide by the workplace policies and procedures manual and were subject to the day-to-day control and supervision of the employer companies) was the same as that exercised over other employees (she performed the same duties as the recognized employees), she was limited in what she could earn (she was paid a fixed hourly rate or per diem rate per child, with little ability to increase the remuneration received due to employer controls on the scheduling of work hours) and took no financial risks (she was not required to assume significant financial risks or make investments in the business beyond the requirement to have a cellular phone and access to a computer). Although she was expected to use her own motor vehicle, this factor did not outweigh all the others. Sources: Jamie Flanagan, Rachel Ravary & Maureen Boyd, “The employment relationship: independent contractor or employee?” McCarthy Tetrault LLP (11 March 2005), Online: McCarthy Tetrault ; Andrea Marsland, “Employee vs independent contractor (does it really matter)?” Fogler, Ubinoff LLP (16 July 2013), online: Mondaq ; Paul Carenza &Kristin Taylor, “Employee vs. independent contractor: the test refined,” Cassels Brock (13 May 2013), online: Mondaq ; Brian Thiessen & Skye Friesen, “What’s in a name? The court clarifies the test for independent contractor,” Blake, Cassels & Graydon LLP (8 April 2013), online: Mondaq . 2. Silvia Cabrera is an account executive at a major bank. Over the past six months she has noticed that the performance of one of her loans officer, Jorge Rodriquez, has been declining. Jorge had always been an excellent employee who maintained great relationships with colleagues, performed his work on time, and rarely missed a day of work. However, in the past six months, he has had frequent absences from work, has had difficulty meeting deadlines, and is moody and distracted. When asked if he was having any problems, Jorge simply replied, “It’s personal.” Last week, Silvia happened to be delivering some important bank documents to Jorge’s office when she thought she saw some pornographic images on Jorge’s computer before he switched screens to some graphs and tables. Silvia was not 100 percent sure of what she saw, so she did not say anything to Jorge. She decided to speak to the branch manager about her concerns. The branch manager was quite taken aback and would like to search Jorge’s computer, his email account, and his Internet usage. Can the branch manager legally perform such a search? Discuss. Would it be appropriate and legal for the bank to install computer-surveillance technologies that target the use of information sources on all employees’ computers? [footnote deleted] Answer: There are no specific laws that apply to the search of an employee’s computer, email account, and Internet usage. The legality of monitoring e-mail and Internet usage will depend on • the employer’s policy • the employee’s knowledge that his email or Internet usage is, or is likely, being monitored • whether or not the communications in question are private (the policy in place can eliminate expectations of privacy) In other words, employers may monitor employees’ computer usage if a policy is in place, employees have been made aware of the policy, and the employer is not monitoring private communications. Email communications over the Internet are subject to an expectation of privacy; however, an employer has the right to implement an Internet usage policy, which would cover Internet-based email communications. The Supreme Court of Canada will be weighing in on the contentious issue of workplace privacy as it has given leave to appeal in R v Cole, 2011 ONCA 218, a criminal law case dealing with an employee’s expectation of privacy in information stored on a work computer. The bank should not install computer surveillance without first developing an email and Internet computer-usage policy. By having such a policy, the bank can ensure it does not breach s. 184 of the Criminal Code, which protects private communications. Source: Karen Sargeant, “Big brother is watching you,” The Lawyers Weekly (28 September 2007) 9. 3. Tom Mason was hired as a technical salesperson for Chem-Trend Limited Partnership, a chemical manufacturer that sold industrial chemicals worldwide. At the time of hiring, he signed a standard form contract that contained a confidentiality clause prohibiting him from using or disclosing any trade secrets or confidential information after the termination of his employment, and a non-competition clause that prohibited him from engaging in any business or activity that could be deemed in competition with Chem-Trend for a period of one year following termination of his employment, regardless of whether he had been fired or quit on his own. This prohibition included providing services or products to any business entity that was a client of Chem-Trend during the course of his employment. Seventeen years later, Chem-Trend terminated Mason’s employment. At the time of his termination, his sales territory spanned all of Canada and several U.S. states. As a result, he was familiar with some of Chem-Trend’s clients that operated worldwide, and he had acquired extensive knowledge of Chem-Trend’s products, operations, customers, and pricing. Given this situation, are the confidentiality and non-competition clauses enforceable against Mason? What factors are relevant in determining the enforceability of the non-competition clause? How could Mason and Chem-Trend have better protected their interests? [footnote deleted] Answer: This situation is based on Mason v Chem-Trend Limited Partnership, 2011 ONCA 344, 106 OR (3d) 72 and the facts set out above are a serviceable summary. The lower court found that the provisions in the standard form contract were enforceable. The judge determined that (1) the wording was not ambiguous and Mason understood what he was agreeing to when he signed, (2) the geographic scope, although nearly unlimited, was reasonable because of the worldwide nature of the company’s business and its customers, and that the nearly full restriction on Mason’s activities was reasonable because of Mason’s knowledge of the industry; and (3) the one-year temporal restriction was relatively short and balanced out the more onerous geographical and activity restrictions. On appeal, the Ontario Court of Appeal overturned the decision and found the restrictive covenant to be unreasonable. The court gave four reasons: (1) The confidentially clause prohibiting Mason from using or disclosing trade secrets or confidential information after the termination of employment protected Chem-Trend; therefore, the additional restrictions on competition and solicitation were not necessary; (2) the prohibition against dealing with any former customers was overly broad considering Mason’s 17-year career; that is, information about many former customers was likely to be of little competitive value because the information was old; (3) Mason was one of a number of salespersons who dealt with Chem-Trend’s customers in a limited territory; that is, unlike the president or CEO, he did not have a relationship with all of them, and (4) the scope of the restriction was unworkable as it was impossible for Mason to know whether he was prohibited from dealing with a prospective customer since he did not know all of Chem-Trend’s customers and he did not have access to all of Chem-Trend’s customer lists. Leave to appeal the decision was denied by the Supreme Court of Canada on 12 January 2012. Based on the court’s decision, the confidentiality clause is enforceable against Mason but the restrictive covenant is not. The factors that are relevant in determining whether a restrictive covenant is enforceable are the following: (1) the clause must be reasonable between the parties and in reference to the public interest; (2) the balance is between the public interest in maintaining open competition and discouraging restraints on trade and the right of the employer to protect its trade secrets, confidential information, and trade connections; (3) the validity of a clause can be determined only by an overall assessment of the clause, the agreement within which it is found, and all the surrounding circumstances; (4) whether the employer had a proprietary interest that was entitled to protection; (5) whether the temporal or spatial limits are too broad; and (6) whether the covenant is overly broad because it prohibits competition generally and not just solicitation of the employer’s customers. Mason might have protected himself by not signing the agreement containing the clause; however, he would risk the company not hiring him or alienating the employer. The advice for the employer is to take care in drafting restrictive covenants. An employer should not rely on a boilerplate provision but rather draft a clause that provides clear guidance to the employee, is expressly tailored to the specific employee’s role and her actual knowledge of the company, is workable, and protects a legitimate business interest. In short, clauses must be narrowly drafted and be unambiguous, commercially reasonable, and practically workable. 4. In July 2012, Suncor Energy, Canada’s largest oil producer introduced a new drug and alcohol policy for union employees at two of its oil sands operations north of Fort McMurray. The policy required employees in safety sensitive positions to submit to random drug and alcohol testing. The selected employees were required to provide urine samples. In support of its policy, Suncor stated that there was an “out-of-control drug culture” in the Fort McMurray area and cited the following: • In the nine year period between October 1, 2003 and December 31, 2012, there were 224 positive alcohol and drug tests of Suncor Employees; • There have been 20 fatalities at the two oil sands worksites, and alcohol or drugs were factors in three of them; • Between 2004 and August 2013, there were 2,276 security incidents involving alcohol and drugs, including the discovery of devices used to defeat urine drug tests, such as whizzinators, bottles of urine, and urine testing kits; • In 2009 through 2012 there were 115 positive employee alcohol and drug tests at the impugned workplace compared to only five positive alcohol tests and zero positive drug tests at all of Suncor’s other operations in Canada Answer: Suncor also stated that it had tried other methods to address its concerns about alcohol and drug use including the use of sniffer dogs and extensive safety training and education with respect to alcohol and drugs. What are the competing interests involved in workplace alcohol and drug testing policies? Is Suncor’s random drug and alcohol testing policy justified? Explain. The competing interests involved in workplace drug and alcohol testing are workplace safety on the one hand and employees’ rights to privacy and human rights on the other hand. A board of arbitrators in Alberta held that Suncor’s random testing was an unreasonable exercise of management rights. The board applied the test set out in Irving (text page 527) and found there was insufficient evidence to establish a connection between drug and alcohol abuse and the safety record at Suncor’s oil sands operation. The evidence presented was not specific enough to meet the Irving standard. For example, the board noted that the three fatalities all involved contractors, not union employees, and the security incidents cited did not identify the involvement of union members and the positive alcohol tests either involved non-union or unidentified workers. Further, the high volume of positive alcohol and drug tests results at the oil sands operation in comparison to other Suncor worksites in Canada neither provided enough details of the testing nor addressed how many Suncor employees worked at the oil sands site relative to how many Suncor employees worked at other sites. Suncor failed to demonstrate a substance abuse problem specifically among the unionized workforce. It also failed to make a causal connection between alcohol and drug problems and accidents, injuries, and near misses at the oil sands operations. The arbitrators also focused on the urine analysis test and stated it was unacceptable because it does not gauge current impairment and it is invasive (i.e., taking bodily fluids without consent). It also noted that oral fluid testing was available as an alternative and is much less intrusive. Sources: Ryan K. Smith “Alberta arbitrators strike oil company’s random alcohol and drug testing policy,” Miller Thomson (28 March 2014), online Miller Thomson ; Rebecca Saturley and Michelle McCann, “Suncor’s random drug and alcohol testing policy tests negative,” Stewart McKelvie (29 April 2014), online: Stewart, McKelvie ; John C. Batzel, “Alberta arbitration board considers random alcohol and drug testing in closely watched case,” Bennett Jones (17 April 2014), online: Bennett Jones . 5. In January 2005, the Canadian Imperial Bank of Commerce (CIBC) launched a lawsuit against a number of its former employees and Genuity Capital Markets. CIBC is seeking damages in excess of $10 million. CIBC alleges a variety of transgressions, including the theft of client information and the solicitation of its employees. CIBC alleges that the former CEO of CIBC World Markets (CIBC terminated the CEO’s employment in February 2004) and others set up a competitor, Genuity Capital, while still employed with CIBC. In less than a year, a total of over 20 senior employees of CIBC left to join Genuity. The allegations are supported by copies of numerous BlackBerry messages exchanged by the defendants in the summer of 2004. Since CIBC filed its suit, the defendants have counterclaimed for $14 million, alleging that the bank breached the privacy of the defendants by going through their email. Further, the former CEO has stated that he was not restricted by any agreement from competing with CIBC. Assuming that the former CEO was not restricted by any agreement from competing with CIBC, does that exonerate him from liability? What can companies like CIBC do to avoid similar situations? What steps can an employer take to minimize the risks associated with the loss of employees and intellectual assets such as client lists, business strategies, and the like? [footnote deleted] Answer: In the absence of a contractual restriction, there is an argument that the former CEO as a senior officer owed a fiduciary obligation to CIBC not to compete with CIBC after leaving. As a fiduciary, the CEO is under an obligation not to solicit CIBC’s clients or employees for a period of time after leaving (probably for about one year). To void similar problems, employers should insert very clear restrictive covenants in the employment contract. The restrictive covenants should be customized to the specific position and the specific interest in need of protection. Restrictions should be clearly and narrowly defined, including definitions for clients, customers, business enterprise, and the geographic and temporal features. This situation allows for discussion of the proper use of restrictive covenants in employment contracts: • Avoid the “one-size-fits-all” approach to covenants. • Strive to identify the key people or positions where departures would lead to losses and tailor the clause to these people or positions. • Beware of overreaching clauses in terms of both geography and time; a clause that is too broad will be struck down and the employer will be left without any protection • Assess the enforceability and validity of clauses that a new recruit may be subject to; it may not be advisable to hire someone that is subject to such a clause or it may mean assisting an employee down the road with litigation with his or her former employer. Employers should also make sure their employees are fully aware of their obligations of loyalty and confidentiality at the time of hiring, promotion, and termination. They should also be made aware that the obligation of confidentiality includes such proprietary information as client lists. See Antonio Di Domenico, “Risky business: Protecting your information and client relationships through restrictive covenants,” Partners (Summer 2008) Fasken Martineau at . 6. Melissa Antidormi was a successful 41-year-old working as a sales manager with BEA Systems Inc., a California-based software firm, when she left to join Blue Pumpkin Software Inc. At the time of her departure, her base salary was $90 000, and she was on target to earn approximately $300 000 in sales commissions. For 19 months, Blue Pumpkin had pursued her to lead its expansion into Canada and Latin America. She initially declined the offer as she had no interest in leaving her job at BEA Systems. However, Blue Pumpkin was persistent in selling their vision of a “New Canadian Team.” Blue Pumpkin flew Antidormi to California, where the CEO indicated that Melissa’s new position would provide a long-term opportunity. With promises of better pay, greater responsibilities, and job security, she joined Blue Pumpkin. Six months later, Melissa was terminated when the company changed its business plans to concentrate on the U.S. market. The company offered her two weeks of severance; she sued for wrongful dismissal. After a two-year legal battle, the Ontario Superior Court awarded her $320 000—the equivalent of one year’s salary, commission, and bonuses—plus her legal costs. The court ruled that Melissa deserved 10 months’ notice because Blue Pumpkin had misrepresented certain facts—in particular, the job security that she would enjoy as long as she performed well. How can employees protect against false promises and misrepresentations? How can employers protect against false promises and inflated expectations? [footnote deleted] Answer: This case illustrates the need for employers to scrutinize their recruitment practices. What the employer says or does before the employee starts employment is important. Employers need to make sure that all representations are honest. They should educate those that are responsible for hiring, including head-hunters and recruiters, as to the consequences of their representations. These people need to know that they must not say or do anything that the company is not prepared to stand behind because the employer is responsible for their conduct through, for example, vicarious liability or agency. Employers should also prepare clear, written contracts that outline the expectations of both parties and solidify the provisions of the termination. Also, employers may include in the employment contract a clause that states that the terms and conditions in the contract override any prior representations. An employee would be wise to do his or her own checking of a potential employer to avoid a situation like Melissa found herself in. The employee should check financial reports, articles, business analyst reports, and websites. An employee should always ask questions to clarify any ambiguities or vague statements, but more important than getting answers is getting any representations and promises in writing. Take copious notes of discussions. Also build a termination clause into the contract that will require the employer to pay beyond the standard notice period should things not work out. These steps may help avoid a long and costly legal battle. Source: MaryJo Johne, “Promises, promises: When job offers are too good to be true,” The Globe and Mail (11 May 2005) C1. 7. Jordan Wimmer, a blonde, 29-year-old financier employed by Nomos Capital Partners Ltd., is suing her supervisor because he allegedly sent her emails calling her a “dumb blonde” and “decorative.” She is also claiming that he sent the following joke to her and her colleagues: “A blonde asks her boyfriend for help assembling a jigsaw puzzle. She struggles to match the pieces to the picture of a rooster on the box. Eventually the boyfriend calms her down and says, ‘Let’s just put all the cornflakes back in the box.’” What is the legal basis for Wimmer’s lawsuit? What does she have to prove to be successful? Assuming the allegations are true, is she likely to be successful? Is Nomos Capital responsible for the supervisor’s actions? How should companies deal with issues of “jokes” in the workplace? [footnote deleted] Answer: The legal basis for Wimmer’s lawsuit is sexual discrimination, in particular, sexual harassment. Sexual harassment is unwelcome conduct of a sexual nature that detrimentally affects the work environment or leads to adverse job-related consequences for the victims of harassment. Such conduct may include sexual remarks, unwelcome touching, inappropriate jokes, sexual requests or suggestions, staring or making comments about a person’s appearance, and the display of suggestive pictures, drawings, or slogans. To prove sexual harassment, a person needs to show he or she endured unwelcome sexual attention and that it had detrimental or negative consequences. Even if the allegations are true, Wimmer still must establish that the attention was “unwelcome” and it had “negative consequences.” In the case on which the situation for discussion is based, the tribunal found that the complainant had not been a persuasive witness and failed to complain or show distress about the incident until long after it occurred. See Lucy Cockcroft, “Jordan Wimmer: female city worker loses sex discrimination case,” The Telegraph (4 May 2010) at . If she successfully establishes sexual harassment, both the supervisor and the employer may be liable—the supervisor because of his conduct and the employer because of vicarious liability. In Canada, some provincial human rights legislation specifically imposes liability on employers for the acts of employees. Even in the absence of such provisions, the Supreme Court of Canada has imposed liability against an employer for the conduct of its employees. The steps that companies like Nomos capital should take to deal with workplace harassment include the following: • Educate employees and management about harassment. • Implement a policy that includes an explanation of the policy, a definition of prohibited conduct, a warning of penalties, a procedural guideline for filing a complaint, and an outline of the process following the filing of a complaint. • Investigate all allegations of harassment promptly. • Resolve all instances of harassment quickly though the procedures set out in the policy. • Mitigate the effects of harassment, for example, by restoring sick leave used because of the harassment. • Prevent the reoccurrence of harassment by instituting both remedial and punitive measures as outlined in the policy. Source: Randall Echlin, “Prevention falls to the employer,” The Globe and Mail (16 July 1998) B12. 8. Richard Evans was employed for six years by The Sports Corporation (TSC), as a sports agent. He was responsible for managing current and prospective NHL hockey players coming from the Czech Republic and Slovakia. Although Evans was neither a director nor shareholder of TSC and had no power to hire or promote employees, he had primary responsibility for TSC’s eastern European operations and he developed close personal relationships with players. Evan’s fixed-term employment contract contained the following non-solicitation clause: He will not, either during the continuance of his employment under this agreement or for a period of 24 months thereafter, directly or indirectly through others, call on, solicit, divert or take away or attempt to call on, solicit, divert or take away any client of the Company which has been a client of the Company or any other company to whom Evans provided any services related to the Company’s business. At the end of his fixed term contract, Evans left TSC and set up his own business. Prior to leaving TSC, he asked two TSC employees, Jaromir Henys and Peter Kadlecek, who were responsible for recruiting hockey players in the Czech Republic and Slovakia, to join him and they agreed. After setting up his business, Evans did not personally solicit TSC’s clients but Henys and Kadlecek began directing TSC clients to Evans, who began representing those clients. TSC brought an action against Evans. What are the potential cause(s) of action in this case? What would TSC need to prove to be successful? Is TSC likely to be successful? Explain. [footnote deleted] Answer: The potential causes of actions are breach of breach of fiduciary duty and breach of the non-solicitation clause. Contractual non-solicitation: Not every non-solicitation clause is reasonable and if it is not reasonable it will not be enforced. The court considered the wording, specifically “any client of the Company which has been a client of the Company or any other company to whom Evans provided any services related to the Company’s business” and stated that it was ambiguous. It could be aimed at prohibiting solicitation of other people previously given services by Evans while they were clients of TSC or a related company, or it could be read as prohibiting past clients of TSC, which would be unreasonable. It is unreasonable to restrain Evans from soliciting past clients of TSC who had already left the company. Breach of fiduciary duty: TSC would need to prove that Evans was in a position of trust and because of the nature of the relationship between TSC and Evans, TSC was vulnerable to Evans. If that is the case then the court will impose a fiduciary obligation onto Evans. In the case, the court noted that because of Evans position in developing close personal relationships with players, the element of vulnerability required for fiduciary status was present. Although Evans was not a director or shareholder of TSC and had no managerial powers, he was entrusted with primary responsibility for the Eastern European operations. Because he had power and influence over TSC’s clients on account of the personal relationships developed in the course of business, he was a fiduciary. (Fiduciary status does not depend on holding a corporate office but depends on the employee’s responsibilities.) Once there was a finding of a fiduciary relationship, Evans had obligations to not solicit clients of TSC. The prohibition against solicitation cannot be avoided by having someone else do the solicitation for him. See: Brian Thiessen and Shaun Parker, “Alberta Court of Appeal clarifies fiduciary obligations,” Blake, Cassels & Graydon LLP (23 January 2013), online: Mondaq ; Joel Fairbrother, “A win for employers: Greater obligations on some departing employees,” Field LLP (12 February 2013), online: Mondaq. Solution Manual for Canadian Business and the Law Philip King, Dorothy Duplessis, Shannon O'byrne 9780176570323, 9780176509651, 9780176501624, 9780176795085