Employment Standards Act reforms could overwhelm small businesses

Apr 11, 2013

Doug was interviewed by Advocate Daily on how reforms to the Employment Standards Act will impact small business. This is an excerpt from that interview …

“Several recommendations outlined in a recent report aimed at reforming the province’s Employment Standards Act could increase labour costs and will likely be met with resistance from small employers, says Toronto employment lawyer Doug MacLeod.

Among the 47 recommendations contained in the Law Commission of Ontario’s final report on vulnerable workers and “precarious work” are more protection for temporary foreign workers and the creation of a “benefits bank” for workers without coverage. Read Toronto Star

“Employers are not required to provide benefits to any employees. For these employers who decide to offer employee benefits the cost can be up to 25 per cent of total compensation. Extending benefits to part-time employees in these workplaces on a pro-rated basis would significantly increase labour costs,” explains MacLeod.

“I think the priority should be educating workers on their rights and enforcing the existing legislation. I don’t think in this economy there will be much appetite for substantive change. You can expect resistance from the business community especially from small businesses which are already overwhelmed with record keeping and other obligations,” he adds.

Specifically, MacLeod expects significant push-back from small business owners on the recommendation to extend the personal emergency leave provisions in the ESA to workers in workplaces with fewer than 50 employees. “Doing so would present significant scheduling and planning issues for small employers; hence the reason for the current exemption,” he explains.

The report also recommends considering amendments to the ESA to ensure part-time workers are paid at proportionately the same rate as full-time workers in equivalent positions. However, MacLeod notes that this would significantly increase labour costs in workplaces with many part-time workers.

While the report suggests extending some ESA protections to self-employed persons in dependent working relationships with one client, he says, whether a person is an employee or a dependent contractor is a much litigated issue under the ESA and in the courts. “Including a definition of dependent contractor could reduce the amount of litigation on this issue,” he adds.

Another recommendation – to increase the amount of unpaid wages workers can recover from $10,000 to $25,000 – would also significantly reduce the number of wrongful dismissal actions and free up time in the courts for other types of actions, says MacLeod.

“The $10,000 cap is currently a problem for long-term employees who are owed termination and severance pay well in excess of $10,000,” he adds.”

There are many ways to attack the termination clause in an employment contract. 

I am now surprised if employee counsel does not claim that their client’s  termination clause is not legally enforceable - usually because the termination clause does not allegedly comply with the Employment Standards Act.

This blog considers a case, McKercher v Stantec Architecture Ltd., 2019 SKQB 100, where an employee successfully attacked the termination clause in his contract because he did not explicitly agree to it after being promoted. 

The Facts

In 2006, Mr. McKercher commenced employment as a staff architect. The termination clause in his employment contract stated: 

Termination other than for cause will be with notice or pay in lieu of notice, based on your length of service. If the Employer terminates your employment for other than just cause you will receive the greater of:

  1. a)   Two weeks notice or pay in lieu of notice during the first two years of employment increasing by one week for each additional completed year of employment to a maximum of three months notice or pay in lieu of notice.


  1. b)   The minimum notice of termination (or pay in lieu of notice) required by applicable statutes.

Eleven years later, when Mr. McKercher was employed as a Business Centre Sector Leader, his employment was terminated. The employer paid him the three months termination pay he was owed under his employment contract.


Another way to attack a termination clause: What is the changed substratum doctrine?

An Ontario judge in a 2012 case, MacGregor v National Home Services, 2012 ONSC 2042 (CanLII), described this legal doctrine as follows: "The changed substratum doctrine … provides that if an employee enters into an employment contract that specifies the notice period for a dismissal, the contractual notice period is not enforceable if over the course of employment, the important terms of the agreement concerning the employee’s responsibilities and status has significantly changed."


The rationale for this doctrine has been described by one judge, Schmidt v AMEC Earth & Environmental Ltd., 2004 BSCS 2012 (CanLII), as follows: "In my view, it was incumbent on the defendants to advise Mr. Schmidt that they intended to continue to rely upon the termination provision set out in the Agreement when substantial changes in his employment occurred. This would have allowed him to consider the matter and to negotiate for other terms. If the defendants wished to continue to rely on the termination provisions there ought to have been a ratification of the provisions as the nature of Mr. Schmidt’s employment changed."



The judge hearing this case relied on the following factors when deciding not to enforce the termination clause in the employment contract: ”...there is no evidence that (the employer) made it clear to the (employee) that the notice of termination provisions were intended to apply to the positions to which he was promoted. The employment agreement contains no express wording to this effect, nor does it contain any wording to support the inference of such an intent. Further, and in keeping with the analysis in Schmidt, the Court received no evidence that, as it promoted the plaintiff, SAL reasserted its understanding and expectation that the notice of termination limit would remain in effect.”


Lesson to be learned:

An employer should make it clear that the termination clause in an employment contract applies when an employee is promoted. This expression of this intent should be in writing and should be clear and unambiguous. I recommend that an organization’s employment be reviewed by an employment lawyer every year or two. If your employment contract does not address this issue then think about doing so the next time it is reviewed.


For 30 years, Doug MacLeod of   the MacLeod Law Firm has been advising employers on all aspects of the employment relationship. If you have any questions, you can contact him at 416 317-9894 or at [email protected]

The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.



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