What you don't know can hurt you

Dear Employer,

I know you are very busy completing your day-to-day duties and running your business. But sometimes you have to take a step back and think of the bigger picture, as well as the smaller steps that can help you be more strategic.

You might think you don't have time to implement proper contracts and policies. Maybe you don't have any ongoing employee issues — at least not anything you are aware of.

But what you don’t know can hurt you.

When suddenly an issue arises — perhaps an employee complains they are being discriminated against, being harassed, or constructively dismissed — you will not have the appropriate protections in place. Without the protections, you will end up being exposed to not only unnecessary liability but also a bad reputation and loss of employee morale.

So, I am writing this letter to expose some of the common myths and help you make strategic decisions.

Here are some of the prevalent myths:

1. Every employee has a probation period during which they can be dismissed without notice or cause.

This is incorrect because probation periods are not automatic. In Ontario, employees can be let go within the first 90 days of their employment without any notice or pay in lieu of notice, pursuant to the Employment Standards Act, 2000 (ESA). However, employees have common law rights which also apply, and a contract must specifically limit an employee’s entitlements upon termination in order to displace those rights. Otherwise, the employee will be entitled to reasonable notice/pay in lieu at common law.

So, if you want to limit an employee’s entitlements, then you should specifically state that in the employment contract. But keep in mind that you cannot contract out of the ESA. If you want to impose a longer probationary period than three months, for example, you must provide the employee with at least their minimum entitlements under the ESA.

If you do not have an enforceable contract and/or termination clause in place, and you let go of an employee after relatively short service, you will be on the hook to pay damages at common law, which can be substantial. Yes, even for short-service employees!

2. Employees are entitled to one month of severance per year of service.

Employees are not automatically entitled to one month of severance per year of service. As noted above, an employee’s entitlements upon termination will depend on whether there is an enforceable contract and termination clause in place. If so, the contract will apply. Otherwise, the employee will be entitled to reasonable notice at common law.

Pursuant to common law, an employee is entitled to reasonable notice (or pay in lieu of notice) of termination, which is based on a variety of factors such as their age, length of service, role and availability of comparable employment.

For example, an elderly employee with 30 years of service may be entitled to 24 months at common law, but merely eight weeks under the ESA. If the employee was earning $100,000, then you could be on the hook for $200,000 at common law as opposed to approximately $15,000 under the ESA.

By having proper contracts in place, you can substantially reduce your liability as well as dismissal costs.

3. Salaried employees are not entitled to overtime pay. And as long as an employee is labelled a “manager”, you don’t have to pay them overtime.

It is true that certain employees are exempt from the ESA’s overtime pay requirements. However, it is not dependent on how an employee is paid. Even if an employee is salaried, they may be entitled to overtime pay. Under the ESA, beyond 44 hours of work in a week is considered overtime and must be paid accordingly.

Similarly, you cannot label an employee as a manager to avoid paying them overtime. If they are a manager only in name, then you are still obligated to pay overtime. And it does not matter if the contract says they agree they are not entitled to overtime pay, because as noted earlier, you cannot contract out of the ESA.

By failing to pay overtime pay where it is owed, you can be exposed to substantial liability later on.

You can consider having an overtime policy requiring employees to seek authorization prior to working overtime and note the consequences of breach of policy, in which case you can potentially discipline them for failure to comply. You can also consider implementing an averaging agreement such that an employee’s overtime hours are averaged over a period of time (two to four weeks) for purposes of calculating overtime pay.

There are many other myths but I will leave that for another day.

For now, I will leave you with this key takeaway: strategic use of contracts and policies is critical to protecting your workplace. In particular, contracts, policies and procedures can:

• reduce labour costs
• minimize risk and liability
• maximize your rights and flexibility as an employer.

What you don’t know can hurt you, but what you do know can help you, if you approach HR strategically.

Rather than assuming, make informed decisions. As we often say, “If you think you need an employment lawyer, you probably do”.

Sincerely,

Your employment lawyer