By Howard Levitt
The rule is, ‘Know your statutes’, but the truth is most employers don’t
1. You can fire an employee without severance during the first three months
It’s a common assumption that the first three months of employment are a probationary period, allowing the employer to move on without consequence if they so choose.
Courts, however, don’t see it that way. In one case, a two-week employee was awarded 12 months’ severance. Employees who were fired before they even started — because the employer changed their mind about hiring them — have been awarded up to six months’ severance.
Why? Because there is no “probation” unless the parties agree to that in a letter of offer or employment contract. And even if an employee is on probation, the employer cannot simply dismiss them without severance unless the contract explicitly states that. If it merely states that an employee is on probation, then that employee must be provided a fair chance to prove themselves and, if the employer cannot prove that, the employee is entitled to severance, just not as much as if they were not probationary.
2. Employers should avoid saying bad things about former employees because they can be sued
That too is false. References are protected by the courts. As long as the employer honestly believed what they were saying, the employee cannot sue for defamation, even if the information was wrong and even if it cost the employee a job. An exception might exist if the employer makes its statements without any basis whatsoever. In that event, it might be sued for negligence, but not defamation.
Now, if the employer really had it out for a former employee and provides a terrible reference maliciously, that is not the type of good faith, albeit erroneous, reference which will receive protection from a court.
3. The courts will limit severance if a company is downsizing due to hard times
That once was the law, but no longer. Even if the required severance would bankrupt an employer, the severance awarded will not be reduced.
4. Non-competition covenants are unenforceable, but non-solicitation clauses are enforceable
There is a lot to unpack here.
Non-competition covenants in Ontario agreed to after October 2021 have been rendered unenforceable by legislation, but non-competition covenants in older contracts remain potentially enforceable.
One exception are new contracts with C-Suite executives, which remain potentially enforceable.
But the court will go a long way to strike down these clauses in any event if they are overly broad in the length of time they cover, the area the employee is restricted from working in and the extent of the competition it covers.
If the court decides that the employer does not genuinely require the protection the contract provides — for example, if it concludes a non-solicitation clause should suffice — it will render it unenforceable. When acting for executives, I therefore allow broad non-competition covenants to stand rather than negotiating them on the basis that they are unlikely to be enforced and I do not want to negotiate them into enforceability, just like one does not want to negotiate into enforceability a punitive severance clause.
Non-solicitation clauses are generally enforceable because courts believe employers should have their customer base protected from the predations of former employees, at least for a reasonable period until the employer has a chance to re-engage with those customers. But if the clause is for too long a period or too broad in any respect, it too will be struck down.
5. It’s ‘no harm, no foul’ for employers who breach employment statutes
If an employer makes a technical violation of the employment statutes such as paying severance week by week rather than in a lump sum or by being a few days late issuing a record of employment, and there is no real consequence to the employee, many believe the employer will not face consequences, especially if they do it carelessly or in ignorance rather than deliberately.
Certainly, deliberate mischief begets judicial censure and punishment. But courts have also recently punished employers in punitive and other damages for what appears to be minor inconsequential breaches, particularly of employment standards legislation. The rule is, “Know your statutes.” And the truth is, even most employers do not.