A question that both employers and employees commonly have is “what counts as constructive dismissal?” As detailed in our previous blog post linked below, there are many types of unilateral changes that can result in a constructive dismissal: https://www.kswlawyers.ca/blog/constructive-dismissal-unexpected-consequences-of-changes-to-the-employment-relationship

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One of the more common scenarios that we deal with however is where an employee has been constructively dismissed as a result of changes to their compensation. This is, of course, more obvious when an employer has reduced the employee’s salary (unsurprisingly, this is usually constructive dismissal).

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Where it gets murkier is in dealing with compensation structures such as commissions, performance-based bonuses, or similar arrangements where an employee’s compensation can vary from month to month.

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In short, if an employee’s compensation structure is changed in a way that reduces or potentially reduces their pay, this will often be considered constructive dismissal. For example, if an employee is moved from their sales territory to a new territory that has historically performed much worse, this would likely be considered constructive dismissal.

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Similarly, if an employer unilaterally changes the way that the employee’s compensation is calculated (e.g. by implementing a new formula which might result in the same pay, but makes achieving that level of pay more challenging), this could also be a form of constructive dismissal.

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Conclusion

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As emphasized in our other blog post, constructive dismissal (like many legal issues) is highly fact-specific and varies case by case. Employers should consult with legal counsel before making significant changes to the employment relationship, to ensure that they are not inadvertently terminating an employee and exposing themselves to potentially significant claims for constructive dismissal.  

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Employees who believe that they have been subject to a constructive dismissal should seek legal advice as soon as possible to avoid inadvertently condoning (i.e. accepting) a fundamental change to the employment relationship, and to determine if the change is sufficient to constitute constructive dismissal.

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It is important for employees to seek legal advice before resigning from their employment as an unsuccessful claim of constructive dismissal will result in the employee receiving no severance.

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Note to Readers: This is not legal advice. If you are looking for legal advice in relation to a particular matter please contact one of our group members. We communicate all these updates to our clients and readers on our Employer Resources Portal and through monthly Newsletters.

The City of Nanaimo, a medium sized BC community of 170,000 residents employed Victor Mema as its CFO for 3 years from 2015 to 2018 when he was dismissed for cause related to misuse of the City’s credit cards. Mema was a Black person from Zimbabwe.   5 years after his termination the Chair of the Human Rights Tribunal found his race was a factor in his termination and awarded him lost wages of $583,413.40 (after deducting some portion for mitigation!), $50,000 as compensation for injury to dignity, feelings and self-respect, $10,150.04 for expenses and post judgment interest.

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The decision represents in my view a marked departure from the usual findings of a violation of the Code that all employers, especially municipal and public sector employers should note.

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Decision - Mema v City of Nanaimo

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The decision is 107 pages and delves into the facts in great detail.  But the City would have known from the first 5 pages of the Award that it was in trouble.
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The Tribunal spends the first 4 pages analyzing the concept of anti-Black racism:

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[6] This case alleges anti-Black racism in a predominantly White workplace, in which Mr. Mema was one of very few Black employees. The social context of anti-Black racism in Canada is a critical element. I take notice that, as Mr. Mema submits in argument, “Black people can be treated adversely in the workplace because of a conscious or unconscious stereotype of Black people being criminals, dishonest, of questionable moral character or poor.”

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It concludes in the opening section:

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[12] Ultimately, I have applied the above in my consideration of whether the evidence as a whole could support an inference that, on a balance of probabilities, Mr. Mema’s protected characteristics factored into the City’s suspension and termination of his employment.

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Evidence and Findings of Fact

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It is not possible to review in any detail in this article the extensive analysis of the facts and findings of the Tribunal that span almost 70 pages and indeed it is difficult to fully summarize the various findings. Although the findings are important the focus of this article is the legal analysis of discrimination under the Code. Anyone who wants to really understand the impact of this decision should take the time to read the section on “EVIDENCE AND FINDINGS OF FACT” pages 9 through 76. We will summarize the key findings as follows

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All employees who had use of corporate credit cards (referred to as P-cards) were required to sign a P-Card Agreement which prohibited personal use.  The P-Card Agreement included the following provisions:

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3. I understand that under no circumstances will I use the [P-card] to make personal purchases. Failure to do so could be considered as misappropriation of City funds. Failure to comply with this Agreement may result in either revocation of my user privileges or other corrective action, up to and including termination of my employment.

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4. I agree that should I violate the terms of this Agreement and use the [P-card] for personal use or gain, that I will reimburse the City for all incurred charges and any fees related to the collection of those charges

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The Tribunal found however that:

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[44] In practice, however, some personal use of P-cards was accepted. Where someone used their P-card for personal expenses, they were expected to indicate that expense as personal on their P-card statement and reimburse the City. There were no guidelines for the timelines for such repayment, but most people repaid promptly.

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Mr. Mema in his role as CFO had to approve other employees’ P-Card expenses.  He noticed that some employees would indicate personal expenses and would reimburse the City promptly.  Notwithstanding his role as CFO Mr. Mema concluded that the City condoned this practice and therefore he used his P-Card for personal use.  He knew the practice had to be updated as it clearly was not good practice but concluded that while “it may not have been good practice it was the practice at the City.  Notwithstanding his conclusion it was a bad practice he took no steps to amend the policy when he became CFO.
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However unlike other employees Mr. Mema did not repay his personal expenses promptly.  Unfortunately, the CAO who herself had a dispute with the City simply approved Mr. Mema’s personal expenses and sent them to the finance staff for processing.
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This then became a major problem for employees in the finance department as Mr. Mema continued to rack up large amounts of personal expenses and would not repay them.
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The decision outlines the serious problems at the City at the time.  By 2016 the acrimony between the CAO and the Mayor had escalated to the point where the City paid $10,000 for the CAO to get her own legal advice regarding:

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alleged defamation, bullying, harassment and discrimination by the Mayor and a Councillor, after Council’s directing them to “work collaboratively and respectfully” with Ms. Samra [the CAO]”

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Fast forward to the point where certain staff in the finance department make formal complaints about what they saw as abuse by Mr. Mema and the CAO of the P-Card policy.  The City engaged auditors to review the P-Card practices and filed its Report.
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The finance staff filed a Serious Misconduct Report regarding Mr. Mema.  Broadly the allegations were:
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1. Mr. Mema began using his P-card for personal purchases in March 2016;

2. Since then, in total, he made 70 personal transactions totaling $14,148.97;

3. He was aware that the cardholder agreement prohibits personal use of the Pcard;

4. Mr. Mema’s personal use of the P-card meets the definition of “serious misconduct” because it constitutes “unauthorized and inappropriate use of the City’s assets”,

5. In September 2017, DD and Ms. Mercer reported Mr. Mema’s use of the P-card to the City’s regular auditors, under s. 172 of the Community Charter;

6. Repeated attempts were made to have the funds repaid;

7. Mr. Mema issued a cheque to the City that was ultimately returned NSF;

8. On February 17, 2017, “the City of Nanaimo began a $500 biweekly payroll garnishment to begin to repay the amount owing”;

9. Around the same time, the City of Nanaimo began to pay Mr. Mema $600 per month as a “vehicle allowance”. Ms. Slater alleged that the CFO position requires very little travel for business, and that she did not have any details on how this was authorized;

10. All of Mr. Mema’s P-card statements were approved by Ms. Samra;

11. Ms. Samra disciplined Ms. Mercer and DD when they brought Mr. Mema’s personal P-card purchases to her attention;

12. Ms. Slater was concerned that Mr. Mema and Ms. Samra were using their “management override capabilities” to authorize payments and expenditures for each other. Ms. Slater noted the $16,922.50 payment to Ms. Samra on for the Samra Legal Invoices and another amount for the 2017 bonus payment to Mr. Mema; and

13. Mr. Mema requested that Mr. Mloyi be granted access to the banking system

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Mr. Mema was first suspended and then ultimately terminated.   A key problem at the City were numerous leaks of confidential information to the media.  Mr. Mema first found out about the Misconduct Report when a radio reporter contacted him asking about his suspension.

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Legal Analysis

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The Tribunal summarizes the applicable law of discrimination under the Code:

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[281] In a human rights complaint, the burden to establish that discrimination has taken place rests with the complainant. It is not up to the respondent to prove that they did not discriminate: Heyman v. Saunders (No. 2), 2010 BCHRT 88, at para. 6. A complainant is required to prove a case of discrimination on a balance of probabilities. If the complainant is successful in establishing a case of discrimination, the burden shifts to the respondent to justify its conduct. If the complainant fails to prove a case of discrimination, then there is no breach of the Code…
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[282]  In order to establish a case of discrimination, Mr. Mema must prove that he experienced an adverse impact regarding his employment and that his ancestry, place of origin, race or colour was a factor in that adverse impact: Moore v. British Columbia (Education), 2012 SCC 61, para. 33. There does not need to be an intention or motivation to discriminate: s. 2 of the Code. One’s protected characteristics need not be the sole or even the overriding factor in the adverse impact experienced; they need only be a factor…
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[283]  In this case, there is no dispute that Mr. Mema has the protected characteristics under which he filed this complaint. He is Black and was born in Zimbabwe. There is also no dispute that he suffered an adverse impact when he was suspended and later terminated from his employment, following the filing of the Misconduct Report.

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What makes this case interesting and scary for employers is the analysis the Tribunal considered in finding discrimination in this case:

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[284] The issue I must decide is whether there is a connection between Mr. Mema’s protected characteristics and the City’s suspension and termination of his employment. This is a question of fact for the Tribunal to decide after a review of all of the evidence: Stewart v. Elk Valley Coal Corp., 2017 SCC 30 at para. 5. Aside from the perceptions of the witnesses including City Councillors and employees, there is no direct evidence that Mr. Mema’s protected characteristics were a factor in the City’s decisions. Rather, this is a connection that can only be made from drawing an inference. [emphasis added]

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The Tribunal rejected what it said was the City’s arguments that there was no evidence of any connection between the decision to terminate and any prohibited ground.  It stated:

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[288] To the extent the City is arguing that discrimination can only be established by direct evidence, this approach is inconsistent with the prevailing jurisprudence, specifically in respect of race-based discrimination. In fact, the jurisprudence is express in highlighting that such discrimination is often proven precisely from drawing inferences. The Tribunal made this point in Kennedy, developing it further in Radek v. Henderson Development (Canada), 2005 BCHRT 302 [Radek]. In Radek, the Tribunal acknowledged that discrimination will more often be proved by circumstantial evidence and inference; and that subtle unconscious beliefs, biases and prejudices usually inform racial stereotyping, which can be inferred from circumstantial evidence.

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[289]  This Tribunal has more recently articulated the approach to be taken in the context of race discrimination in Campbell v. Vancouver Police Board (No. 4), 2019 BCHRT 275 [Campbell] and Francis. I adopt the Tribunal’s statements in Campbell at paras. 102 – 105, regarding the subtle, pernicious nature of racial discrimination, with most racial discrimination complaints turning on an inference. There, the Tribunal said that (at para. 103): an inference of discrimination may arise “where the evidence offered in support of it renders such an inference more probable than the other possible inferences or hypotheses”: Vestad v. Seashell Ventures Inc., 2001 BCHRT 38 at para. 44; Abbott at para. 31. In this case, the question is whether an inference of discrimination is more likely than the VPB’s explanation for the officers’ conduct. In making this assessment, it is not necessary that the officers’ conduct be consistent only with the allegation of discrimination and not any other rational explanation…

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[291]  I similarly adopt this Tribunal’s approach in Francis at paras 284 – 289, as cited by Mr. Mema, where the Tribunal emphasized the importance of a contextual approach to race discrimination, noting that several contextual factors informed the analysis of the inferences that could be drawn from the facts in that case. As the Tribunal explained at para. 284: Establishing what constitutes a reasonably objective observer in the context of race discrimination cases is challenging. There are "no bright lines" in cases where discrimination must be proven by circumstantial evidence, and these cases are often "difficult" and "nuanced"… A contextual examination of all relevant circumstances is often required to identify the "subtle scent of discrimination"… For example, one such contextual circumstance is any historical disadvantage experienced by the group: Mezghrani v. Canada Youth Orange Network Inc. (CYONI) (No. 2), 2006 BCHRT 60 [CHRR Doc. 06-066], para. 28

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The Tribunal concludes:

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[293] In sum, as stated earlier in this decision, I have applied the recognition by courts and human rights Tribunals of pervasive stereotypes of Black men in my consideration of the issue before me. That issue is whether the evidence as a whole could support an inference that, on a balance of probabilities, Mr. Mema’s protected characteristics factored into the City’s suspension and termination of his employment.

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In rejecting all the City’s arguments including the fact that their CFO had engaged in serious financial misconduct that there was no evidence to support a finding of discrimination, the Tribunal comments:

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[295] The City argues that there was no differential treatment of Mr. Mema because “any CFO in a similar position and engaging in such serious misconduct would have been terminated from employment in February, 2017; and, if not then, in October, 2017.” Evidence of differential treatment is not necessary, and in any event, this argument relies on a hypothetical. The issue before me is not whether the City treated Mr. Mema as it would have any other hypothetical CFO in the same situation, but whether his protected characteristics were a factor in how the City did treat him.

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[296]  The City then argues that there is no evidence that the February or October reporting of the P-card issues by finance staff, or Ms. Mercer’s flagging it to the auditors were “triggered by racist motives”. However, “motive” and intentions are not required to establish discrimination under the Code, as s. 2 of the Code makes plain. Further, it disregards the reality that racial stereotypes may operate subconsciously, as this Tribunal recognized in Campbell and Francis. [Emphasis added]

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Despite what appeared to be a strong argument by the City of a “non discriminatory explanation” for the suspension and termination the Tribunal found:

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[298] Ultimately, for the reasons set out below, I am satisfied on a balance of probabilities that – however subconsciously – pernicious stereotypes of a Black man as less honest or trustworthy factored into the Misconduct Report, and as such there is a connection between the Misconduct Report and Mr. Mema’s protected characteristics. The City’s reliance on the discriminatory Misconduct Report tainted its decisions to suspend and terminate Mr. Mema’s  employment, rendering it discriminatory. I am thus satisfied on a balance of probabilities that the City breached the Code when it suspended then terminated Mr. Mema’s employment. [Emphasis added]

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Remedies

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As noted, the Tribunal found that an award of $50,000 for hurt feelings, injury to dignity and self respect. Mr. Mema had asked for $75,000.

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The really interesting finding is the wage loss.  The Tribunal found that Mr. Mema tried to mitigate his damages.  However despite a finding of discrimination that resulted in his lost employment the Tribunal was not satisfied that Mr. Mema’s difficulties in finding reemployment arose solely from the discrimination by the City and therefore the City was not responsible for all the loss from the time from the termination to the time of the hearing, ie the normal award [a claim of $777,884.54].  Why did the Tribunal find that not all the loss in remaining unemployed lay at the feet of the City?
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[385] However, on a balance of probabilities, I am not satisfied that Mr. Mema’s difficulties in finding reemployment arise solely from the discrimination or that that awarding compensation for all lost wages between the time of the termination and the hearing would be an appropriate exercise of my discretion under s. 37(2)(d)(ii).

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[386]  I am satisfied that publicly available information about the matter with Sechelt contributed to his difficulties in finding reemployment. In my view, that situation would reasonably raise questions for a prospective employer about Mr. Mema’s judgment.

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[387] I note that Mr. Mema recalled in his evidence, one prospective employer asked him, “have you Googled yourself?”, presumably referring to the various media articles. I understand this to relate not only to the publicity surrounding his employment with the City, but also his employment with Sechelt. I have not considered the media coverage of the situation at the City. Regardless of the events at the City, the City’s witnesses testified that they came across publicly available material highlighting Mr. Mema’s having used his corporate credit card for 105 personal purchases while employed by Sechelt. Further, the article referenced Sechelt’s having had to pursue him through the courts to seek repayment. It is reasonable to expect this information would have a chilling effect for prospective employers. The article was put into evidence. There is no dispute about that.

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[388] For the reasons set out above, I have reduced the wage loss award sought by a quarter, resulting in a final award of $583,413.40. In my view, this appropriately accounts for the fact that Mr. Mema’s loss of employment was discriminatory, while also accounting for the fact that not all of the wages lost by Mr. Mema fall at the feet of the City for its breach of the Code. It accounts for the fact that some of the information in the public domain related to his alleged conduct while at Sechelt more likely than not played a role in prospective employers’ reticence to hire him and his difficulties in finding reemployment.

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Interesting that this probative evidence of the same issue of misconduct at his previous employer did not factor into the accepting the City’s defense but did factor in to reducing the claim by almost $200,000.
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Finally it is important to note (and a little bit scary) that the Tribunal made no award for future loss as none was sought by the complainant.

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TAKEAWAYS

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The decision is simply too complicated to summarize all the findings. The Tribunal appears to be more readily able to reject the City’s evidence in favour of Mr. Mema’s evidence ignoring the onus that rested on Mr. Mema to prove the discrimination ie the connection between his termination and his protected ground.  And as noted it makes this extraordinary finding based on assumed stereotypical unconscious prejudices against Black men. While acknowledging the deeply rooted history of discrimination faced by the Black community, it's crucial to underscore that, in these cases, it is crucial for the tribunals to adhere to the established legal tests to maintain the integrity of the process and avoid opening the floodgates.

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But the reality is that with legal fees the cost to the City could well exceed $1 million. The same findings could be made of a small municipality say of 10,000 as each case is an individual assessment—it only takes one employee to have a human rights complaint.  How would the citizens of a small community handle payment of a $1 million award plus legal fees especially when most in BC are suffering from horrendous destruction and costs fighting forest fires?

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In my view the decision of the Tribunal here fails to provide proportionality in its analysis and conclusions.  Further I think public sector employers are easy targets for employees to file human rights complaints.  But how long can public employers bear these costs?  The answer might have to be amendments to the Code to limit such awards and more clearly define what is needed to prove discrimination.

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Finally this award highlights the significant procedural problems that now exist at the Tribunal.  The delay in processing complaints has become epidemic.  For example in a recent case the alleged discrimination took place in December 2020; the Complaint was filed at the very end of the one year limitation period Dember 2021 and the Tribunal first notified the Employer that the complaint had been filed in May 2023 some 32 months after the events alleged to constitute discrimination.

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Here there was almost a 5 year gap from the termination to the award and the potential wage loss was exacerbated due to the Tribunal’s inefficient process to conduct a proper formal hearing.

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I acknowledge that the Government has stepped up with further financial support and the Tribunal is doing everything it can to resolve the backlog and increase the efficiency of the system. Yet fixing the problem will likely take years.  In the meantime employers large and small pay the price.

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NOTE the City advises that it will be filing an appeal by way of a Judicial Review—watch this space.

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Mike Weiler & Chris Drinovz

August 23, 2023

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Note to Readers: This is not legal advice. If you are looking for legal advice in relation to a particular matter please contact one of our group members. We communicate all these updates to our clients and readers on our Employer Resources Portal and through monthly Newsletters.

For additional information about workplace injuries, compensation claims, and the Workers’ Compensation system in British Columbia, please also review the following articles:

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• Workplace Injuries and Workers Compensation Claims
• Overview of Workers’ Compensation in British Columbia
• WorkSafeBC Claims Guide for Injured Workers
• Who is Covered by Workers' Compensation Act?

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In today's dynamic work landscape, understanding the distinction between independent contractors and employees is crucial. This difference extends to WorkSafeBC coverage, and it's a topic of paramount importance for employers and individuals in British Columbia. WorkSafeBC's Personal Optional Protection (POP) offers an optional safety net, providing workplace disability insurance, health care, wage loss benefits, and rehabilitation support to those who choose to participate. But who exactly qualifies as an independent contractor, and what are the implications for their WorkSafeBC coverage?

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What is Personal Optional Protection coverage?

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Independent Contractors can purchase Personal Optional Protection (“POP”) coverage from WorkSafeBC.  POP is optional workplace disability insurance, which may entitle an injured person to health care, 90% of their wage loss, and rehabilitation benefits.  Registering for WorkSafeBC POP turns an independent operator into a worker for the purposes of the compensation provisions under the Workers Compensation Act, RSBC 2019, c 1 (the “Act”). The extent of benefits depends on how much wage loss coverage is purchased.  As of 2023, the minimum monthly coverage is $2,700, while the maximum is $9,400 or the amount equal to your monthly earnings, whichever is lower.

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Worker or Independent Operator?

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Distinguishing between a worker and an independent operator has been contentious.  Proprietors and partners in a partnership who operate independent businesses are not automatically covered by WorkSafeBC.

Section 4(2) of the Act describes an independent operator as someone “who is neither an employer nor a worker.”  An independent operator may be a sole proprietor or a partner of a partnership.  Meanwhile, the Act defines a worker as an individual performing a contract of service (whether in writing, oral, express, or implied) who does not have an independent business under that contract.  A worker is paid by wage, salary, commission, piecework, profit sharing, or other means.

Policy Item AP1-1-1 of WorkSafeBC’s Assessment Manual provides factors to consider in distinguishing between a worker and independent operator:

(a) Control: WorkSafeBC considers the ability, authority, or right of the person for whom the work is done to exercise control over the individual doing the work.  The greater the degree of control, the more likely the individual doing the work is engaged under a contract of service.

(b) Chance of profit and risk of loss: Whether the individual doing the work has an opportunity to make a profit, and whether the individual doing the work will risk a loss.  Profit is not renumeration based, rather the difference between revenue earned and expenses incurred.

(c) Provision of major equipment: Whether the individual doing the work is required to provide assets used to generate revenue and needed to perform the work.

(d) Business integration:  WorkSafeBC considers whether the individual doing the work has or continues to have an independent business in existence during the course of the work.  WorkSafeBC may also consider who is best able to fulfill the occupational health and safety and other obligations of an employer under the Act.

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Weighing these factors will depend on the context of the relationship.  WorkSafeBC may also consider the structure and customs of the industry, the parties’ intentions, and the terms of the contract.
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These are factors similarly considered in an employment context when distinguishing an employee from a contractor.   WorkSafeBC adopts common law’s general concept of contract of service but does not adopt all its technical rules.  This means coverage under the Act may commence even though by common law principles no contract of service yet exists (Policy Item AP1-1-1).  
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Review Division decision no. R0304257 dated July 19, 2023, assessed whether the Board appropriately classified a finishing carpenter as a worker.  The employer appealed the Board’s decision which found that the individual was a worker of the company and entitled to coverage under the company’s account.  The employer became responsible for reporting payroll and paying assessments on the worker’s earnings.  The employer advocated that this individual did not work solely for them.  
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The Review Division applied the above-noted Policy Item AP1-1-1 factors.  The Review Officer found that the finishing carpenter “would not likely have a significant degree of control over how or where the work is performed.”  The individual advised that he provides his services on an hourly basis and that it does not appear that he would have a chance of profit and risk of loss.  Further, the finishing carpenter is expected to provide his own hand tools, ladders, and consumables, but not any major equipment.  Lastly, the finishing carpenter worked on projects controlled by the employer.  The employer was found to be the applicable body to fulfill the occupational health and safety obligations under the Act.  As a result, the finishing carpenter was deemed a worker and the employer became responsible for associated premium increases, if any.  
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What is intriguing about the Review Division’s decision no. R0304257 is that the finishing carpenter applied for coverage with the Board.  During the assessment, the finishing carpenter affirmed that he had a contract with the company to perform services on a labour-only basis.  It appears that the Board gave weight to the fact that he was not working with any other companies at the time of his application—which is a key consideration for employers working purported independent contractors going forward.

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What Does All This Mean

In essence, the fine line between independent contractors and employees is not always straightforward, and the implications are significant. How the parties label their working relationship is not determinative of whether an individual is a contractor and responsible for their own WorkSafeBC coverage. It’s about the level of control, profit opportunities, risk of loss, equipment provision, and business integration.

Recent decisions, such as the case of the finishing carpenter above, demonstrate that WorkSafeBC's assessments can carry substantial consequences for both individuals and employers. As an employer, it's crucial to understand these nuances, and for individuals, it's vital to consider your coverage options carefully.
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In the ever-evolving landscape of employment law, the key takeaway is that assumptions about your employment status aren't enough. Whether you're an employer or an independent contractor, understanding the nuances of WorkSafeBC coverage and the factors that influence it is essential to protect your rights and financial well-being. So, before you make any assumptions or decisions, consult with legal professionals who specialize in employment law to navigate the complex terrain of WorkSafeBC coverage with confidence. Our experienced team is here to help!

Note to Readers: The information in this bulletin is for general guidance only and does not constitute legal advice. It is based on the current laws and regulations in effect at the time of writing, but may be subject to change in the future. The blog post does not take into account the specific circumstances of any employer or employee, and should not be relied upon as a substitute for professional legal counsel.

If you are looking for legal advice in relation to a particular matter please contact one of our group members. We communicate all these updates to our clients and readers on our Employer Resources Portal and through monthly Newsletters.

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Are you a federally regulated employer in Canada? If so, you may be wondering about the key differences between employees and contractors for your industry. In this blog post, we will explain some of the factors that distinguish these two types of workers and why it matters for your business, with a focus on the trucking industry.

Examples of federally regulated workplaces include:
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1. air transportation
2. banks, including authorized foreign banks
3. first Nations Band Councils (including certain community services on reserve)
4. port services, marine shipping, ferries, tunnels, canals, bridges and pipelines (oil and gas) that cross international or provincial borders
5. road transportation services, including trucks and buses, that cross provincial or international borders
6. any business that is vital, essential or integral to the operation of a federally regulated industry.

These workplaces (among others) are governed by the Canada Labour Code (the “Code”), which governs employer/employee relationships in these workplaces.

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Employees vs Contractors: What's the Difference?

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An employee is a person who works directly under your control. A contractor, on the other hand, is generally a person provides a specific service for a fee. The key difference between an employee and a contractor is the degree of independence that they have. In other words, the greater the degree of control over the individual, the more likely it will be that they will be classified as an employee.

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Why Does it Matter? Employees

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Employees are entitled to minimum employment standards, health and safety legislation, and other legal protections such as:
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1. minimum wage;
2. overtime pay;
3. vacation pay;
4. statutory holidays;
5. severance pay;
6. maternity and parental leave;
7. sick leave;
8. bereavement leave; and
9. work-related injury.
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Employees also have the right to join a union and engage in collective bargaining with their employer.
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Notably for federally regulated workplaces, unlike workplaces governed by the British Columbia Employment Standards Act or other provincial legislation, the Canada Labour Code provides a unique protection to federally regulated employees. Specifically, the Code protects federally regulated employees from “unjust dismissal” which, in short, prevents federally regulated employers from terminating some employees without a valid reason. This is a significant limitation on federally regulated employers as the Code allows for a wrongfully dismissed employee to be forcefully reinstated to their role with back pay, which can often exceed the employee’s entitlements at common law. Therefore, it is even more essential for federally regulated industries (e.g. interprovincial transport) to ensure that any contractors they employ are contractors vs. employees.

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Why does it Matter? Contractors

Contractors are not employees and thus, do not enjoy the protection of employment standards legislation.

Contractors are responsible for their own taxes, insurance (including WCB), benefits and expenses. This also means that employers must ensure that it is clear that the contractor is responsible for, for example, remitting applicable taxes to the Canada Revenue Agency (“CRA”).

Contractors also have more control over how they perform their work and when they work. Contractors have a greater risk of profit or loss depending on their business performance.

Contractors also typically should be submitting regular invoices for their work.

How to Determine the Status of a Worker?

There is no definitive test to determine whether a worker is an employee or a contractor. Rather, the court, tribunal or other adjudicator will take a holistic view of all of the factors, which include:
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1. Degree of Control: Who controls how the work gets done and when? Employees usually have less control over their work process than contractors. Using the trucking industry example, can the worker decline shifts or choose their route?
2. Ownership of equipment: Employees usually use equipment owned by their employer's company, while contractors use their own tools (e.g. truckers who lease or own their own trucks are more likely to be considered contractors).
3. Financial risk: Who bears the risk of profit or loss from the work? Employees have regular salaries or commissions to rely on for compensation. Contractors have a greater risk of profit or loss depending on their business performance.
4. Integration: How integrated is the worker into the employer's business? Employees are usually more integrated than contractors who may work for multiple clients.
5. Independence: Is the “contractor” permitted to service other clients? If not, this will weigh in favour of the contractor being, at minimum, a “dependent” contractor who is entitled to reasonable notice of their termination.

Although a written contract between the parties is not conclusive, a properly drafted agreement may assist in making it more likely that the contractor will be deemed to be a contractor vs. an employee.

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What Happens if a Contractor is Found to be an Employee?

If there is a complaint against an employer to the Canada Revenue Agency, the Federal Labour Program (federally) or Employment Standards Branch (provincially regulated employers), either one could launch an entire audit over the business and all contractors/employees, to assess their true status.
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If the CRA finds someone to be an employee, both the employee and employer would be assessed and have to pay income tax, CPP, EI that should’ve been remitted.
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If the Employment Standards Branch receives a complaint and does an audit, the employer would have to pay vacation pay, statutory holiday, overtime and potentially reasonable notice or severance pay (see Why does it Matter? Employees list above).
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For federal employers, if there is a termination issue, the Labour Program could order the employer to reinstate the employee with back pay under the unjust dismissal remedy (see final paragraph from Why does it Matter? Employees section above).
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Conclusion

Employers, and especially federally regulated employers, need to be aware of the key differences between employees and contractors as this will significantly affect the worker’s rights and obligations.
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To help prevent potential issues, we recommend that:
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1. you reach out to one our employment lawyers if you are uncertain regarding whether you are federally or provincially regulated;

2. you have written employment agreements for your employees, and written service agreements with your contractors; and

3. are clear on which of your workers are contractors vs. employees.

Note to Readers: The information in this bulletin is for general guidance only and does not constitute legal advice. It is based on the current laws and regulations in effect at the time of writing, but may be subject to change in the future. The blog post does not take into account the specific circumstances of any employer or employee, and should not be relied upon as a substitute for professional legal counsel.
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If you are looking for legal advice in relation to a particular matter please contact one of our group members. We communicate all these updates to our clients and readers on our Employer Resources Portal and through monthly Newsletters.

First of all, congratulations! Second, put your plans and expectations in writing.

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While many are familiar with the term “pre-nuptial agreement”, in BC, we also have “cohabitation agreements”. These are similar agreements that are drawn up when you start living with your partner, whether you intend to marry or not.

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Having a cohabitation agreement does not mean that you expect your relationship to end. In fact, many who have one are lucky enough to never use it. However, if it does end, you have a legally binding contract already in existence that sets out what you and your partner would like to occur. As lawyer’s we try to make these agreements as strong as possible to reduce the risk of it being varied and to minimize stress and conflict for you at the time of a separation.

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After years of requests from real estate developers, the federal government announced on September 14th that it will exempt new rental apartment buildings from paying 5% GST on construction costs. The intention is to incentivize developers to proceed with constructing rental apartments, which should increase the availability of rental units and ideally bring down rent prices.

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Real estate developers have argued that rising costs make it financially impossible to build rental apartments, which limits supply and drives up rents. One of the reasons being that rental buildings require the developer to pay 5% GST on its construction costs, since there is no ultimate buyer of the unit. For condo and townhome sales, the ultimate buyer pays the 5% GST instead of the developer. For many developers, the GST on rental projects alone could be millions or tens of millions dollars, which is often the difference between whether a developer decides to build or not.

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The impact of this policy will remain to be seen, but giving developers a break on GST should see more rental units constructed, ultimately benefiting supply.

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If you have any questions regarding this new policy or real estate law in general, reach out today.

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The law surrounding constructive dismissal is full of potential pitfalls, both for employers, who may inadvertently constructively dismiss an employee and expose themselves to significant liability for failing to provide adequate notice, and for employees, who are faced with the difficult decision of asserting that a constructive dismissal occurred, or accepting an unwelcome change to their employment contract.  In order to successfully avoid these pitfalls, it is important for to have a basic understanding of the circumstances under which a constructive dismissal may occur.  

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At its core, constructive dismissal rests on assertion that employees are entitled to rely on the terms of their contract of employment remaining fixed, and that fundamental changes to the employment contract cannot be made without the employee’s consent.  A constructive dismissal occurs when an employer, through their conduct, shows that the employer no longer intends to be bound by the contract of employment.

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What is a constructive dismissal?

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In the leading case of Potter v New Brunswick Legal Aid Services Commission, 2015 SCC 10, [2015] 1 SCR 500, the Supreme Court of Canada articulated a two-branch test to determine whether a constructive dismissal has occurred.  First, a constructive dismissal can occur through a single unilateral act that breaches an essential term of the contract of employment.  Secondly, it can also occur where the employer’s conduct, taken as a whole, shows the employer no longer intends to be bound by the employment contract.  Notably, a written employment contract is not required for this doctrine to apply, although the absence of a written contract can make determining whether a breach has occurred more challenging.

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The first branch requires that the unilateral change must substantially alter an essential term of the employment contract.  There are two stages to this analysis.  First, it must be shown that there was a breach by way of a unilateral change by the employer.  Secondly, it must be shown that a reasonable person in the employee’s situation would feel that the breach was a substantial change to an essential term.  This is a highly-fact driven exercise, and will depend on the exact circumstances of the change.  

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The second branch requires a finding that the employer has shown they no longer intend to be bound by the employment contract.  The key question is the employer’s perceived intention; ie, whether a reasonable person in the same circumstances as the employee would view the employer as intending to no longer be bound by the contract.  This does not require a single act, but can occur through the cumulative effect of past acts.

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Examples of constructive dismissal

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A non-exhaustive list of conduct that Canadian courts have found to constitute constructive dismissal is found below.  It is important to note that this conduct is only sometimes, but not always, sufficient to establish a constructive dismissal:

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• Demoting an employee to a position of lower prestige and status;
• Failing to provide a promised promotion;
• Requiring an employee to perform a fundamentally different type of work or systematically removing an employee’s duties;
• Changing the employee’s work location, such as a transfer to another city, province or country;
• Changing the employee’s hours of work;
• Changing the employee’s work conditions, such as a transfer to a smaller office with reduced amenities and access to other employees;
• Engaging in abusive behaviour that renders continued employment intolerable, such as verbal abuse, foul language, unsubstantiated accusations, or threats of termination;
• Failing to prevent the harassment of an employee by co-employees;
• Breaching the employee’s privacy, such as through unwarranted surveillance;
• Suspending an employee, either for discipline or for administrative reasons;
• Removing an employee’s support infrastructure and preventing them from accessing information and meetings necessary for them to perform their duties;
• Demanding an employee resign;
• Laying an employee off temporarily, when a lay-off is not explicitly authorized by the employment contract or by past conduct;
• Placing an employee on probationary status without cause; and
• Changing an employee’s remuneration significantly

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When does a constructive dismissal kick in?

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Once an employee has been confronted with a unilateral change to the employment relationship, they must choose to accept the change, or reject it and refuse to go to work.  Until the employee has indicated, by action or by word, that they do not accept the change, there is no constructive dismissal.   An employee will typically be allowed a ‘reasonable’ period or time, typically two or three months, to decide whether they wish to accept the repudiation of the contract.  In certain cases, a delay of six or even seven months has not found to constitute condonation.  However, an employee is not entitled to wait forever before asserting constructive dismissal, and delaying too long will result in a court finding that an employee condoned the change to the employment relationship.  

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It is critically important for both employees and employers to understand that every case is fact-specific and what is a constructive dismissal in one case may not be one in another.  Because of this, one of the challenges that confronts both employers contemplating a change to the employment relationship, and employees faced with a change, is that it often be unclear when the line has been crossed and grounds for asserting a constructive dismissal actually exist.  

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The consequences for both employees and employers in failing to correctly determine if a constructive dismissal has occurred can be significant. From the employer perspective, for example, a good faith change to the work location of a long-term employee could result in paying up to 24-months salary for failing to provide adequate notice.

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From the employee perspective, if the employee assert a constructive dismissal and the court finds that the employer did not actually dismiss them, the employee will be found to have resigned, and to have lost any entitlement to notice or wages in lieu of notice.

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Conclusion

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Employers should consult with legal counsel before making significant changes to the employment relationship, to ensure that they are not inadvertently terminating an employee and exposing themselves to potentially significant claims for constructive dismissal.  

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Employees who believe that they have been subject to a constructive dismissal should seek legal advice as soon as possible to avoid inadvertently condoning a fundamental change to the employment relationship, and to determine if the change is sufficient to constitute constructive dismissal.

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Note to Readers: This is not legal advice. If you are looking for legal advice in relation to a particular matter please contact one of our group members. We communicate all these updates to our clients and readers on our Employer Resources Portal and through monthly Newsletters.

 As part of their licensing process, realtors in British Columbia will learn about many laws that will impact their day-to-day work. However, there are a few lesser-known legal obligations that can have a massive impact on your career. In particular, these are 3 legal obligations that every realtor in the province should keep top of mind:

‍1. Earning Commissions Under a Listing Agreement‍

Listing Agreements must be absolutely clear about how commission is earned and how long the property can be listed for. Occasionally, realtors will have a client sign a listing agreement, and then verbally agree to change some of the terms in order to give the client a deal. The final listing agreement must exactly match what the realtor and client agreed to, and the agreement must be signed by the client. A realtor can be shorted on their commission if the listing agreement doesn’t accurately reflect what they’ve agreed to with the client, or if someone signed on behalf of a client company but was not an authorized signatory.

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There have been court cases in BC where clients have tried to avoid paying their realtors the commission owed under a listing agreement, arguing that the person who signed the listing agreement on behalf of the client company was not one of the company’s authorized signatories (in most cases, a director or officer). Realtors should always ensure that the person signing a contract is authorized to bind a company to that contract.

2. Realtor’s Duty of Care and Avoiding Negligence Claims

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A buyer can only sue a listing agent for negligence if the buyer can establish that:
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1. The listing agent owed a duty of care to the buyer; and
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2. The listing agent was negligent in carrying out that duty (i.e., the listing agent fell short of the standard of care).

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A listing agent is obligated to disclose all material facts known to them that could affect a reasonable purchaser’s willingness to enter into an agreement to buy a property.

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Usually, the listing agent can satisfy this duty by asking the seller and other sources for information about the property. The realtor is not obligated to inspect the actual property or independently verify what they’ve been told, unless they have a reason to doubt what they’ve been told.

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Damages for negligence claims are typically equal to the actual loss suffered as a result of the realtor’s actions. In many cases, this would be the difference in the property’s value had the defect been disclosed to the buyer.

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This issue often comes up in situations where agents recommend to their clients that the inspection subject clause be removed from the contract, but there is reason to believe there are issues with the property (e.g., drainage issues) which are not disclosed to the buyer.

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As a realtor, always tell your clients to seek independent legal advice, but the key takeaway here is that you are obligated to discover facts relating which a reasonably prudent agent would have discovered in order to help their clients avoid error, misrepresentation, or concealment of facts with respect to a certain property.

3. Obligations To Collect or Pay GST

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Although realtors should never give tax advice (refer clients to tax lawyers or accountants for tax advice, if needed), realtors are often asked by their clients to provide off-the-cuff tax information, especially regarding GST. Many realtors will often provide mistaken information about GST. If you are asked by a client to provide some commentary on GST, ensure that you keep these key points in mind:

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1. GST payable on deposits: GST is payable on the entire assignment amount – not just a deposit. However, once that deposit has been applied to the full price for the property, it is subject to GST as part of the whole amount. For example, if a buyer puts down a deposit for $100,000 on a property being purchased for $1 million, no GST is payable at that time, but once the buyer pays the remaining $900,000 of the purchase price, the deposit becomes part of the total consideration paid for the purchase, and GST may be payable on the full $1 million.
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2. ‍GST on assignments: The standard form Assignment Agreement covers who pays GST between an assignor and assignee. When dealing with pre-sales, if a developer also requires its own form of assignment agreement to be signed, realtors must make sure that the GST section of the developer’s agreement does not conflict with or contradict the Assignment Agreement’s terms regarding who pays GST. The 2 documents should align exactly regarding who is responsible to pay GST.
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3. Assignments involving Non-Residents of Canada: As a realtor, you should make sure that the appropriate party remits GST to the CRA, as the CRA has the power to chase either the buyer or seller for unpaid GST, and if one party is a non-resident, it’s likely the CRA will go after the other party for the unpaid tax. This is particularly troubling for Sellers, as the Excise Tax Act makes it clear that the party selling taxable property is responsible for indicating to a buyer the amount of GST owing, and then also responsible for collecting the GST and remitting it to the CRA. The seller can only sue the buyer for not paying the GST if the Seller carried out its duties to flag for the Buyer the amount of GST that was owing.

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When in doubt, the Canada Revenue Agency provides helpful info on its website, and always remember, you can know enough to provide tax information, but do not provide tax advice. Always refer clients to a tax lawyer or accountant for detailed tax questions regarding specific scenarios.

Most people who run their own business operate through a corporation or a company as it’s commonly known. A company is a separate legal entity that acts independently. As an entity, it can do things like enter into contracts, own property and sue others.

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A company’s activities are tracked in its minute book. The minute book contains important information including the rules that govern the company, a register of the company’s directors and shareholders and resolutions authorizing the company to take certain actions such as paying dividends or obtaining loans.

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Other than it being legally required, it’s important to have a minute book in order to provide updated records to people who regularly want to see them such as shareholders, buyers and lenders.

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Generally, a minute book is kept at the company’s registered and records office. Due to the sensitive nature of the information, a lawyer usually prepares and keeps the minute book at their office. Having a law firm act as your registered and records office ensures that your minute books are kept up-to-date which can save substantial money when you are thinking of borrowing funds or potentially selling the company. Rectifying an incomplete minute book can also be very expensive.

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If you are thinking of incorporating a new company or would like to prepare a minute book for your existing company, reach out to Aman Bindra at [email protected] or call 604-591-7321 today.

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