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Reform the Employment Standards Act

Speaker's Corner

A recent case illustrates to Ontario lawyers the need to overhaul the Employment Standards Act to improve access to justice. Why? Because the current legal landscape creates economic incentives to pursue costly litigation.

Take a recent case, Burton v. Aronovitch McCauley Rollo LLP, before the Ontario Superior Court of Justice.

The ruling details how a 37-year-old woman, known as A.B., was dismissed from her job without cause. She was a front-line worker with almost 13 years’ tenure at her place of employment, with extensive re-employment opportunities for her position. At common law, applying the Bardal factors, A.B. would have been entitled to nine months’ notice or pay in lieu thereof.

However, A.B.’s employment contract provided that notice for a without-cause termination was limited to her entitlements under the Employment Standards Act, 2001. Upon termination, her combined notice and severance pay totalled approximately four months’ notice. In other words, she received about half of what she would have recovered at common law.

A.B. did what most employees do in the circumstances — she sued, claiming that the clause in her employment agreement that limited her to her ESA minimums was null and void because the wording did not strictly comply with the requirements of the act. This is, sadly, the economically rational thing to do, because, for many people, the difference between common law notice and statutory notice is vast, and recent cases interpreting notice period clauses are, with respect, all over the map.

Realistically, there is little we can do about the case law. The interpretation of contracts is a case-specific exercise depending on the wording in a specific agreement. There is no standard clause that, by statute, applies to every employee — but there should be.

The unusual thing about the ESA is that the statute imposes minimum standards that are, without a doubt, quite minimal. A hypothetical long-tenured employee at a business with a total payroll of less than $2.5 million is entitled to a maximum notice of eight weeks. It doesn’t matter whether they worked at the same place of business for 10, 15 or 25 years. Eight weeks. That is, in my view, draconian.

It also leads to unnecessary lawsuits. At common law, the same employee would undoubtedly be entitled to much more. But the only way to claim for common law notice in our hypothetical situation is if the clause in the employee’s contract limiting them to their ESA minimums is void. So, there is an economic incentive for an employee in this situation to start an action for wrongful dismissal in which they seek, among other things, to invalidate the termination clause in their agreement.

Of course, most people can’t afford to retain counsel on an hourly basis for such claims. Instead, they retain a lawyer on contingency, often at a rate of 20 to 30 per cent of any recovery.

That means that even if our hypothetical employee is successful, they won’t recover the full amount owed to them.

It is virtually impossible to fix this situation if we continue to let the common law be the default rule in Ontario employment law. The economic incentives encourage lawsuits, brought on contingency, to try to void any contractual provision limiting an employee to their ESA minimums.

But what if we flipped the script? What if, instead of making the common law the default and the ESA an opt-in regime, the ESA became the default and parties had to opt in to the common law?

Under the current ESA regime, employees would lose out, because the standards are so low. But if the standards were doubled, then the gap between the ESA and the common law closes. And after accounting for the fact that common law notice is often only resolved with the assistance of lawyers, both sides benefit via lower transactional costs if there is a fair, fixed standard for compensating employees terminated without notice.

There is a lot of talk in our profession about access to justice. The discussion often centres around hourly rates or alternative billing practices or pro bono services.

But the best form of access to justice is a legal system where lawyers do not have to become involved in common, ordinary occurrences in commercial life, such as the termination of an employee without cause. If the employer and the employee know for certain how much notice or pay in lieu thereof is owed and there is no incentive on either side to fight for more, then neither side has to involve a lawyer. Assuming the ESA minimums are “just,” that is the best access to justice I can think of, not to mention the effect fair standardization would have on the courts.

Imagine if we could wipe out hundreds or maybe thousands of cases every year by making lawsuits for without notice dismissals a rarity. Some of our colleagues at the bar would have to find a new business model, but, overall, we’d all be better off.

Back to the woman involved in the case. Her employment agreement was not void. After a two-day trial, she lost her case and was responsible for paying her former employer approximately $54,000 in costs on a partial indemnity basis (see 2018 ONSC 5030). If A.B.’s ESA minimums were more generous, she would have no reason to take a chance via a lawsuit seeking common law notice. And her employer, who likely paid tens of thousands more in actual costs than it recovered, would also be better off.

It’s time to improve the ESA and make it the default. That will lead to true access to justice for thousands of employees and employers in Ontario every year.

Andrew Winton is a partner at Lax O’Sullivan Lisus Gottlieb LLP. The views expressed in this column are his own and not the views of the firm.

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