Employees and Independent Contractors: A Brief Review

Posted on August 26, 2014 by Irvin Schein

As I indicated in my last blog post, generally it is not difficult to identify an employment relationship. Whether or not a worker is an independent contractor rather than an employee is often more difficult to determine.

Generally speaking, this is not a distinction that would be apparent to members of the public. If I walk into a car dealership to buy a car, and I am met by a smiling salesman wearing a golf shirt with the dealership’s logo on it, and the salesman hands me a business card with the dealership’s name as well his own name, possibly with words like “sales associate” on it as well, I will assume that I am dealing with someone who is there to sell me a car on behalf of the dealership. More than likely, I would not have the first clue as to whether or not the relationship between the salesman and the company is that of employee or independent contractor. And chances are, I won’t care.

But while the distinction may not be readily apparent to the public, and it is probably not particularly important to the public either, it is important both to the parties to the relationship and to Canada Revenue Agency for a variety of reasons.

As I indicated in my last blog post, the first reason that the distinction is important is that employees and independent contractors may have different termination rights.

Secondly, there are very different benefits that the worker can expect during the course of the relationship. Employees will receive benefits according to company policy together with statutory benefits contained in provincial legislation. For an independent contractor, the extent to which the company provides benefits will depend on the bargain struck between the parties but there is no applicable legislation that would apply.

Finally, there are profound and serious tax considerations at play and Canada Revenue Agency will be extremely interested, in many cases, in the question as to whether a worker is an employee or an independent contractor. In fact, the vast majority of the jurisprudence that has been generated on the point involves prosecutions in the Tax Court of Canada initiated by CRA. Most often, these are prosecutions under the Employment Insurance Act and the Canada Pension Plan legislation.

Simply put, under the Employment Insurance Act, employers are responsible for remitting to the government particular amounts in respect of every worker engaged in “insurable employment”. Similarly, remittances have to be made by employers for workers engaged in “pensionable employment” under the Canada Pension Plan, subject to a number of exceptions. If a worker is engaged by a company as an independent contractor, no such payments have to be made. Similarly, income tax withholdings are to be made where a worker is an employee. None of these is required where the worker is an independent contractor.

The potential problem is obvious. Suppose a company engages a worker on the understanding that the worker is an independent contractor. No statutory withholdings take place and the worker is paid in full for his services on an ongoing basis. At some point years down the road, CRA shows up and takes the position that the worker is actually an employee. If that position is ultimately sustained by a judge, the employer is in for what might be a very substantial payment, with interest and penalties. The company may or may not be in a position to recoup that amount from the worker, who may not even be around any longer.

From the prospective of the worker, someone who considers himself to be an independent contractor may well be filing income tax returns claiming all kinds of deductions for expenses that an independent contractor is entitled to claim, but an employee is not entitled to claim. If a court determines that the worker is actually an employee, all of those deductions will be disallowed.

The courts have developed a series of tests to determine whether or not a worker is an employee or an independent contractor and these tests have evolved over time. It does appear clear that the court will reach its conclusion on the basis of a series of factors none of which is conclusive by itself. All of them will be considered as the court tries to determine the nature of the relationship between the parties in its totality. At the end of the day, the court will try to get at the answer to one basic question: Can it be said fairly that the worker is at least to some reasonable extent in business for himself?

One interesting point to note is that the intention of the parties is not determinative of the answer. In other words, the parties may enter into a contract that specifies either that the parties are in an employment relationship, or that the worker is an independent contractor, but that is not going to be final. At best, it will serve as a “tiebreaker” if the court’s assessment of the other relevant factors shows an equal number of factors on each side of the equation.

For example in the important Federal Court of Appeal case of Royal Winnipeg Ballet v. Minister of National Revenue, both sides testified that they intended the relationship to be that of an independent contractor. This case involved dancers hired by the ballet company and the court noted that the dancers:

were engaged for a particular season
were assigned roles and received instruction and coaching
needed the ballet company’s consent to accept any other engagements
were supplied by the company with shoes, belts and costumes
were told by the company what works would be performed, the time and location of performances, and the time and location of rehearsals
received direction with respect to the performances
had no management or investment responsibilities
bore little financial risk for their work

On the other hand:

The parties had a common understanding that the dancers were independent contractors
Each dancer’s artistic expression was unique
Each dancer personally paid the costs of fitness rehearsal wear, make-up and health-related items
The dancers were registered for GST purposes and charged GST for their services
The company did not withhold any tax

On balance, the Federal Court of Appeal ruled (overturning the lower court decision) that the dancers were independent contractors just as the parties said they intended.

The best one can do is to consider the various factors and try to determine which side appears stronger.

I have been able to distill from the cases a series of factors that are commonly considered:

What is the degree of supervision by the company
Can the worker turn down assignments
Does the worker wear a uniform and carry company business cards
At whose expense are problems remedied
Are invoices rendered, and how is the worker paid
Does the worker receive any company benefits
Is there any job security
Is there exclusivity, or can the worker also work for others
Who determines when, where and how the work will be done
Does the worker have any management or investment responsibility
Does the worker operate out of the company’s space
Does the work take place through a business structure established by the company
Are the worker’s hours and days integrated with the company’s operations
To what extent does the worker receive training by the company
Who establishes the worker’s clientele
Can the worker hire others to complete the work or must the worker perform the services personally
Must the worker attend company meetings
Does the worker provide any supplies, materials or equipment necessary to complete the work

This is not a complete list but almost all of the cases seem to raise at least some of these factors.

While the unpredictability of the cases is unfortunate, parties interested in establishing one or another particular type of relationship might consider these factors and try to structure their relationship accordingly.

When is a Worker a Dependent Contractor?

Posted on August 19, 2014 by Irvin Schein

The recent case of Wyman v. Kadlec highlights the distinction between dependent and independent contractors and the significantly different rights of such workers upon termination depending on how they are characterized.

Let’s begin our analysis with a review of the distinction between employees and independent contractors.

Everyone understands what an employee is. You hire a worker with either an oral or a written contract of employment, you put the worker on your payroll, you pay the worker a salary subject to statutory withholdings, you may or may not provide company benefits, and everyone understands that they have rights and obligations upon termination. Generally it is not difficult to identify a relationship that is one of employer and employee. What is more much difficult sometimes is the identification of a relationship between an employer and an independent contractor.

The distinction is important for a number of reasons, beginning with the difference in termination rights.

In an employment relationship, a written employment contract will probably spell out the obligations of both sides to give each other notice in the event of a decision to terminate. If there is no written agreement, that obligation will be imposed by the common law. At the very least, every province has legislation that prescribes a minimum notice period as well as additional amounts that might be payable as severance in certain circumstances.

In the case of an independent contractor, there is no applicable legislation relating to termination rights. If there is a written contract for services containing termination provisions, one would expect that those would govern. If there is no written contract, the common law may provide termination rights but this will depend on the circumstances and the extent of the notice that would be required on the extent to which the independent contractor actually looks like an employee. This involves the concept of a “dependent contractor”.

In an Ontario Court of Appeal decision called McKee v. Reid’s Heritage Homes Ltd., the Court of Appeal made reference to a category of worker known as a “dependent contractor”. The court was clear that this is not a third category along with employees and independent contractors. Workers are either employees or contractors. If a worker is a contractor, in certain circumstances the court will go on to decide if that contractor is dependent or independent.

The relevance of this question basically relates to notice upon termination. Where a dependent contractor relationship exists, reasonable notice will have to be provided on termination to the extent that it is not specified in any written agreement. Whether or not the notice has to be as lengthy as it would be if the worker was an employee will have to be determined on a case-by-case basis.

The main characteristic of a dependent contractor is exclusivity. In fact, exclusivity is one of the factors that a court will look at to determine whether a worker is an employee or an independent contractor. However, it is only one of a number of factors used in that analysis. If the court determines that the worker is a contractor based on all of the factors, the exclusivity provision will be considered once again to determine whether or not the contractor is independent or dependent. If there is exclusivity (in the sense that the worker can only work for one company alone), the worker will be seen as entirely dependent on that one company for income. In that circumstance, where a worker is not an employee but is in a position of economic vulnerability, the court will protect that worker by deeming him to be a dependent contractor and therefore entitled to reasonable notice of termination.

In the Wyman case, the plaintiff was a worker who managed the operation of the defendant’s resort in northwestern Ontario. The relationship was terminated by the defendant and among other things the plaintiff claimed general damages for wrongful dismissal, on the basis that he was a dependent contractor and as such was entitled to notice of termination.

The court ruled that the plaintiff had functioned as an independent contractor and that either party had the right to terminate the arrangement without recourse or notice. The plaintiff was not in a position of economic vulnerability, having described himself years before as “semi-retired” and with an independent income in the form of a Workers Compensation pension.

There are a number of factors that the court will take into account in determining whether or not a worker is an employee or an independent contractor. I will review these factors in my next blog post. The distinction between an independent and a dependent contractor can also be difficult to determine. As this case illustrates, however, economic vulnerability is the key element in the analysis.

Termination Provisions in Employment Contracts Are Not Always Enforceable

Posted on July 11, 2014 by Irvin Schein

The recent decision in Miller v. A.B.M. Canada Inc. provides a useful lesson on the extent to which one can rely on the termination provisions in an employment contract.

In this case, Mr. Miller joined ABM in 2009. He was given a draft employment contract with no deadline for him to sign it. It was set up with a series of appropriate headings and a plain language description of the terms appropriate to each heading. It contained a clause entitled “Termination” and at trial, Mr. Miller testified that he saw the heading and knew what it meant but did not read the terms set out under it.

The contract provided for a salary and in addition, ABM agreed to match Mr. Miller’s personal pension contributions up to a maximum of six percent of base salary. Mr. Miller was also to be provided with a monthly car allowance. These additional items appeared under the headings “Remuneration” and “Fringe Benefits” respectively.

Under “Termination”, the contract provided that Mr. Miller’s employment could be terminated without cause “upon being given the minimum period of notice prescribed by applicable legislation, or by being paid salary in lieu of such notice or as may otherwise be required by the applicable legislation”.

Mr. Miller began work in September 2009. His employment was terminated in January 2011. At that point, ABM provided Mr. Miller with two weeks of salary in lieu of notice, being salary in lieu of the minimum period of notice prescribed by Ontario’s legislation. He ultimately received a pay cheque for the two weeks’ salary plus vacation pay. The cheque did not include anything for his car allowance component or pension contributions.

Mr. Miller sued for damages, taking the position that the termination provision was null and void so that his entitlement should be determined on the basis of the common law. ABM’s position was that its obligations were limited to payment of salary under the contract, which payment was made. ABM acknowledged that Mr. Miller might be entitled to the pension contribution of six percent of base salary for two weeks plus a car allowance for two weeks, but nothing more.

The court observed that employees under a contract of employment for an indefinite period are entitled to reasonable notice of termination. This is to be treated as a presumption, rebutted only if there is a contract clearly specifying another period of notice and that other period is not inconsistent with legislated minimums.

The court felt that a termination provision specifying a minimum period of notice would be effective to rebut the common law presumption if the period is not contrary to the minimum provided by the legislation. However, the court observed that the length of the notice period is only part of the termination equation. One aspect is the length of time during which the employee is to be paid in lieu of notice. The amount to be paid to the employee during that period is a separate issue.

The law is clear that any provisions that attempt to contract out of minimum employment standards by providing for lesser benefits than those legislated as minimums, are null and void.

In this case, the termination clause provided that Mr. Miller’s employment could be terminated upon being paid salary in lieu of the minimum period of notice prescribed by the legislation. Mr. Miller, however, was also entitled to additional amounts for pension contributions and car allowance as part of his remuneration package.

The court found that the termination clause actually provided for compensation in an amount that was less than required by the legislation. The minimum employment standards legislation includes benefits. Salary, as defined in the contract and specified in the termination clause, did not.

As a result, the termination clause failed to comply with the provisions of the legislation. For that reason, it was null and void and incapable of rebutting the common law presumption that Mr. Miller would be entitled to reasonable notice under common law principles. The court went on to award damages equivalent to 2.5 months of base salary together with additional amounts for benefits.

It is easy to criticize this decision for being overly technical. One would have to assume that if the person at ABM who prepared that contract had been properly advised, the word “salary” in the termination clause would have been changed to take into account the entire remuneration package being provided to Mr. Miller. The additional amounts in issue were quite trivial. Nevertheless, as technical as this approach may appear, this is a reflection of the way courts interpret employment agreements. Generally speaking, employees tend to be given the benefit of any doubt. This case is yet another illustration of the care that has to be taken in drafting employment contracts and particularly their termination provisions.

Loans to Employees and the Duty of Good Faith

Posted on June 26, 2014 by Irvin Schein

The recent Superior Court decision in Canaccord Genuity Corporation v. Sammy is a useful reminder of the law relating what may happen when an employee obtains a loan from his employer, and then the employee is fired.

In this case, the plaintiff Canaccord, an investment dealer, entered into an agency agreement with the defendant Sammy, an investment advisor, in 2011.

The agreement also provided that Canaccord would make a sizeable loan to Sammy. The loan was forgivable under certain circumstances but the agreement provided that if the agency relationship was terminated by either party and for any reason, the loan would be repayable immediately with interest.

After the agreement was executed, Sammy became an investment advisor for Canaccord and brought over his book of business.

Within about a year, Canaccord made the decision to terminate the relationship and did so on 90 days’ notice. Canaccord had concerns about certain aspects of Sammy’s conduct. For his part, not surprisingly, Sammy denied any wrongdoing.

With the termination, the plaintiff demanded repayment of its loan.

Sammy refused to pay, taking the position that the agency agreement had been terminated in bad faith. Sammy insisted that the allegations against him were unproven fabrications, designed as an excuse to end the relationship and appropriate his book of business. He insisted that because of the abrupt termination, he was unable to transfer his book of business to any other dealer and as a result he lost substantial income. He took the position that Canaccord had acted wrongfully and accordingly, he was discharged from any obligation to repay the loan. In the alternative, he insisted that the damages which he had sustained as a result of Canaccord’s conduct could be set off against the amount otherwise owing under the loan.

Canaccord moved for summary judgment.

The essence of Sammy’s defence to the summary judgment motion, and the basis of his counterclaim, was that the manner of his termination was a breach of an implied duty of good faith.

The Court disagreed and granted summary judgment. The Court pointed out that in this case, the loan was repayable even if Canaccord did breach any duty of good faith, simply as a matter of contract interpretation. The issue of whether or not Canaccord’s good faith or bad faith was not relevant to the issue of whether or not the loan was repayable.

The Court observed that under the current law, Canadian courts have not recognized a stand alone duty of good faith independent from the terms expressed in a contract. To the extent that there is a duty of good faith, it has not gone so far as to create new rights and obligations for which the parties have not bargained, nor will it change the express terms of a contract. Rather, the duty of good faith exists to ensure that parties do not act in a way that defeats the objectives of their agreement.

Accordingly, while Sammy might be able to allege bad faith with respect to the termination of the agency agreement, that is not a factor in Sammy’s obligation to repay the loan.

In cases of this nature, it is always within the discretion of the Court to grant judgment but then stay execution of the judgment pending the resolution of a counterclaim. In other words, the judgment will go into the books, as it were, but the successful plaintiff will not be able to actually collect on the judgment until the defendant’s counterclaim has been disposed of.

In this case, the motions judge declined to exercise his discretion that way. He ruled that the money was payable immediately. Presumably, this was a reflection of the Court’s skepticism as to the defendant’s counterclaim.

This case is a useful reminder of the difficulty that will be faced by anyone attempting to avoid his or her obligations, expressed in a contract clearly and plainly, by putting forward arguments that are not directly related to the obligation. If Sammy had truly been concerned about what would happen to his book of business upon termination, and the fact that such a termination would cause him a significant amount of difficulty repaying the loan that had been made to him, he should have protected himself in the wording of the contract.

Money Can’t Buy Happiness, Unless Spending Money on Lawyers Makes You Happy

Posted on June 3, 2014 by Irvin Schein

The recent decision of Mr. Justice Ed Morgan in the case of Morland-Jones v. Taerk does not set any legal precedent, but it tells a great story – particularly for those of us who marvel at the lengths that wealthy people will go to indulge themselves.

In this case, the plaintiffs were oil company executive John Morland-Jones and his wife Paris. The Defendants were psychiatrist Gary Taerk and his wife Audrey.

These couples live across the street from each other in an exclusive Toronto neighbourhood in what the Judge described as “stately houses on a well-manicured, picturesque street” complete with numerous high-end automobiles parked outside.

This dispute came before Mr. Justice Morgan on a motion brought by the plaintiffs for various forms of injunctive relief stemming from their allegation that the defendants had been misbehaving and disturbing the plaintiffs’ peaceful life in what the Judge described as their “leafy corner of paradise”.

The plaintiffs’ house is ringed with eleven video cameras, two of which are aimed directly at the defendants’ front door and driveway.

The hearing before Mr. Justice Morgan began with the plaintiffs’ lawyer playing a security footage excerpt in which Mrs. Taerk was seen performing a “poop and scoop” after her dog did its business on her own front lawn. The footage showed Mrs. Taerk crossing the street with the bag-full in hand, walking towards the plaintiffs’ driveway where their garbage cans were out for collection and returning to her side of the street moments later, empty-handed.

Mr. Justice Morgan described the “dog faeces incident” as a high point of the claim. It was followed by a cease and desist letter sent to the defendants by the plaintiffs’ lawyer describing a “dog urination issue”, referring to photographs showing Mr. Taerk walking his dog and occasionally allowing it lift its leg next to the bushes lining the plaintiffs’ lawn.

According to Mr. Justice Morgan, the story “goes downhill from there”. For example, the Taerks were accused of occasionally parking one of their cars on the street, in a legal parking spot, in front of the plaintiffs’ home. While this accusation was put forward by the plaintiffs, the plaintiffs also conceded that they were parking one of their cars in front of the defendants’ home every day.

The plaintiffs also complained about Mrs. Taerk’s habit of standing in her driveway from time to time taking cell phone pictures of the plaintiffs’ house across the street. Mrs. Taerk was also accused of taking pictures of the plaintiffs’ housekeeper taking their dog out for its daily walk.

As for Mr. Taerk, he was accused of walking by the plaintiffs’ house with a voice recorder in hand, trying to catch some of the verbal exchanges between the parties. Mr. Taerk responded by indicating that Mrs. Morland-Jones occasionally shouts profanity at him while he is on his walks so that he now only ventures onto the road armed with a dictaphone held at the ready in his right hand.

Mr. Justice Morgan also indicates in his reasons that “the controversy has even extended to other lucky residents”. The plaintiffs summonsed four of their neighbours to testify on the pending motion, “no doubt endearing themselves to all of them”. One witness was asked to confirm that he had warned the plaintiffs about the defendants when they first moved into the neighbourhood. His answer was that he could recall saying no such thing. Another witness was asked to confirm that she had sold her house for below market value just to get away from the defendants. She denied having done so.

According to Mr. Justice Morgan, “in what is perhaps the pièce de résistance of the claim, the plaintiffs alleged that the defendants – again focusing primarily on Mrs. Taerk – sometimes stand in their own driveway or elsewhere on their property and look at the plaintiffs’ house”. The plaintiffs showed a video at the hearing showing Mrs. Taerk casting her gaze from her own property across the street and resting her eyes on the plaintiffs’ home for a full 25 seconds.

Mr. Justice Morgan determined that the defendants had not been entirely innocent either. He suggested that they had obviously learned that the plaintiffs, and particularly Mrs. Morland-Jones, had certain sensitivities “and they seem to relish playing on those sensitivities”. He made the observation that the defendants appeared to have acted in ways which they knew would irk the plaintiffs in what he termed “a repeated form of hijinks that could, if a sponsor were found, be broadcast and screened weekly, although probably limited to the cable channels high up in the 300s”. For example, Mr. Taerk was said to apparently enjoy walking by the plaintiffs’ residence with his dictaphone conspicuously raised to shoulder level when he saw Mrs. Morland-Jones in her garden, which then prompted the very outbursts that he was at first reacting to.

According to Mr. Justice Morgan, “the parties do not need a Judge; what they need is a rather stern kindergarten teacher”. He accused them of acting like children, having taken up an entire day in a crowded Motions Court at the expense of the taxpayers.

Mr. Justice Morgan found that there was simply no serious issue to be tried in the action and dismissed it with each side to bear their own costs.

The Latest on Termination of Employment for Insubordination

Posted on April 25, 2014 by Irvin Schein

The recent case of Smith v. Diversity Technologies Corporation provides some interesting insights into several employment law issues and principally that of termination for insubordination.

Mr. Smith was a sales manager for the defendant Diversity Technologies Corporation (“Diversity”). He had a record of being an exemplary employee. He had been employed by a company called Drillwell for 16 years before it was sold to Diversity and he worked at Diversity another four years until he was fired on October 14, 2011.

Diversity alleged that Smith had been terminated for just cause for insubordination. Smith had been the primary contact for a particular client which, by September 2011, owed Diversity about $100,000. At that point, Smith’s immediate superior instructed him to make sales to that customer in future only if they were paid for immediately by cash or credit card. Subsequently, his superior told him that no sales should be made to that customer at all because Diversity was going to be suing the customer to recover the debt.

Nevertheless, Mr. Smith did take an order from the customer of just over $1,000 without telling his superior. He accepted a cheque from the customer to pay for the order.

When this behavior was discovered by Diversity, Smith was fired.

Smith had entered into an employment contract providing for termination by the employer upon payment of one year’s salary which in this case was $100,000. In fact, Smith obtained comparable employment within a matter of weeks and the Court found that he had suffered no loss.

Not surprisingly, Smith put forward a different version of events relating to his instructions concerning that customer. He denied that he had willfully disobeyed his employer or that he had been insubordinate in any way.

Smith made a claim for the $100,000 severance payment and moved for summary judgment. Diversity insisted that Smith had been fired for cause and at worst, it was entitled to a trial to decide the case.

The motions judge had no difficulty dealing with the matter without requiring a trial. The judge considered that even though the versions of the story told by both sides were different, he was in an excellent position to rule on the matter even accepting Diversity’s version of the events, given the law relating to termination for insubordination.

On the facts of cases in which insubordination was held to constitute just cause for immediate termination, the Court noted that employers have the right to determine how business is to be conducted and employees are obliged to follow those instructions. Where an employee fails to follow lawful orders of his employer, he will be found to have disregarded an essential condition of his employment and this constitutes cause for immediate termination.

However, as this case demonstrates, the issue is not necessarily quite so clear cut. In this case, the Court considered that prior to the incident in question, Smith’s conduct as an employee had been beyond reproach. The amount in issue was trifling, particularly in comparison to the amount of the customer’s outstanding account. Because it was paid for immediately, the additional order did not increase the debt. Given Smith’s length of service and impeccable record, Diversity should have met with Smith, pointed out that his actions were in violation of the new company policy relating to this customer, and provided him with a properly-documented written warning. In proper context, his actions could not be considered as amounting to willful disobedience or insubordination.

The Court concluded by indicating that even if Smith’s conduct could be described as insubordinate, “it was not of a magnitude sufficient to justify termination.” Had Smith continued this behavior, Diversity would have had grounds for termination but in this case, its actions in terminating Smith’s employment were not justified.

On the question of damages, it was clear that Smith had mitigated his damages completely. However, given the terms of his employment agreement, Diversity was ordered to pay Smith $100,000 representing the amount payable under the employment contract.

This case demonstrates that before an employer terminates an employee without notice for insubordination, the employer must consider the context of the insubordinate act. An employer cannot simply seize on one instance of an act which might be considered insubordinate in some technical way to justify terminating the employment of an employee of long standing who has an otherwise unblemished record.

The Latest on Employment Contracts that Require Employees to Give Notice of Termination

Posted on April 1, 2014 by Irvin Schein

The recent case of BlackBerry Limited v Marineau-Mes provides a useful insight into the often murky area of the obligations of an employee to provide notice of his intention to resign.

In this case, the employee was a Senior Vice President of BlackBerry Limited.

In the fall of 2013, he accepted a promotion to Executive Vice President in charge of about 3,000 employees. He signed an employment contract for his new position.

Among other things, the contract provided that he could resign at any time on six months’ prior written notice. The contract provided that during the notice period, he would continue to provide active service to the extent required by BlackBerry.

By the time he signed the contract in October 2013, he had already begun discussions with Apple Inc. about a new job. About a month after signing the contract, he had some discussions with BlackBerry’s newly appointed Chief Executive Officer which he did not find satisfactory, because the discussions included the notion that his role might ultimately be narrower in scope than originally contemplated.

One month later, in December 2013, Apple offered him a senior management position and he gave BlackBerry written notice of his resignation. He advised BlackBerry that he intended to join Apple in California in about two months.

This led to a dispute as to whether or not he was obliged to provide BlackBerry with six months’ notice of his resignation as required by the contract, thereby making himself available to assist with his transition out of the company for that period of time. BlackBerry brought an Application to the Court for an Order to that effect. The employee took the position that the contract was not valid and enforceable.

There is an abundance of case law around the question of reasonable notice of termination when an employer makes the decision to fire an employee. There is much less case law relating to the extent to which employees are obliged to give reasonable notice of resignation. That may be why BlackBerry insisted on a specific contractual term requiring six months’ notice in the event that this senior employee wished to resign.

The problem is that these concepts are not simply the opposite sides of the same coin. It is generally open to an employer that does not wish the terminated employee to actually work through his notice period, to provide the terminated employee with pay in lieu of reasonable notice. On the other hand, where the employee is resigning, the employer may well need the employee to continue to work through the notice period, or to at least make himself available so that there can be an orderly transition of that employee’s duties to a replacement. A payment of money by the resigning employee to the employer to take the place of that notice period simply won’t address the problem that the employer may be facing, particularly where the resigning employee is a member of senior management or has other specific knowledge or training that the replacement employee will not have.

In this case, the employee argued firstly that even if the contract was valid, he was free to leave during the notice period and BlackBerry’s remedy was an action for damages if any. The Court had no difficulty rejecting that argument.

The employee raised a number of other minor arguments but the other major point he tried to make was that the six month notice period was the equivalent of a non-competition covenant which was unreasonable and therefore unenforceable.

The Court did not accept that submission either. The Court found BlackBerry’s argument that it was necessary to have the employee available, and that the notice period was one of the tools allowing it to achieve that end, to be quite reasonable. Furthermore, given that the employee knew all along that he was expected to remain available to perform duties to BlackBerry during the notice period, and that these services would be necessary for his transition out of the company, the Court rejected the argument that the notice period was the equivalent of a non-competition clause. Finally and in any event, the Court observed that while the notice period did have some aspects of a non-competition agreement, it is the law in Ontario that reasonable competition clauses are enforceable. The Court found this clause to be eminently reasonable.

In the result, the Court found that BlackBerry was entitled to a declaration that the contract was binding and that the employee was required to provide six months’ prior written notice of resignation.

In my experience, employees sometimes seem to think that if they choose to resign, they will be able to do so without any particular regard for their obligation to provide reasonable notice. That may be true for some. However, where an employer is careful enough to require a specific notice period in an employment agreement, this case is a reminder that employees signing such employment agreements must take those clauses seriously.

Furthermore, for those perspective employers interested in hiring senior employees, it may well be prudent to question the perspective recruit as to any obligation that individual may have to provide reasonable notice of resignation to his or her former employer.