«Prepared by: The Labour & Employment Group SFU Engineering Science January 29, 2004 3000 Royal Centre • P.O. Box 11130 1055 West Georgia Street ...»
• irritability or rudeness on the part of the employer prior to the termination, when the dismissal itself was conducted in private and the fact of the dismissal was kept confidential during the notice period, the employer gave the plaintiff an explanation for her firing which attributed no blame to the plaintiff and gave a laudatory letter of reference;
• making a comment to other employees after the termination that the employee “was given ‘umpteen’ chances to improve but never did;
• failing to extend early retirement benefits to two employees who had resigned and were working through their notice periods;
• making an allegation of cause then withdrawing it soon thereafter, coupled with the sudden dismissal of an employee after a long-running dispute between the employee and her superior.
Quantifying the bad faith element of the dismissal is not an easy task. Typically the more egregious the conduct, the higher will be the award, particularly where the conduct hinders the employee’s ability to find alternate employment. In many of the decisions in British Columbia, the Court has not specified the extent to which the notice period was extended as a result of bad faith conduct and the Court of Appeal has stated that the existence of bad faith is just one more of the factors to be considered in determining a reasonable notice period. However, a few cases have indicated extensions of two to six months.
B. DUTIES OF AN EMPLOYEE
All employees owe a general duty of good faith and fidelity to their employer. In addition, certain senior employees, known as fiduciaries, owe special duties to the employer. Such duties exist during the employment and after the employment relationship is terminated.
(a) Confidential Information and Trade Secrets It is clear that employees are not entitled to use confidential information obtained during the course of employment. However, determining what information is truly confidential is often problematic.
One particular type of confidential information which an employee may obtain from an employer is a “trade secret”. Trade secrets include a process, tool, mechanism, formulae, or recipe which is known only to the employer and the employees who are required to know it due to their employment The employer must in fact keep the trade secret “secret”, and must intend to protect the secrecy of the information. A classic example of a trade secret is the recipe or formula for making Coca Cola.
It is difficult to establish that certain information is a “trade secret”, but when that is established, employees are bound by their obligations of loyalty and good faith not to disclose or make use of the trade secret in competition with the employer or in circumstances where that information may be used in competition with the employer.
In contrast, customer lists often are not considered to be confidential. For example, if a list of customers can be generated from a public document, such as a telephone book or a trade journal, it is difficult for the employer to persuade the Court that the customer names are confidential. However, where a list of the employer’s customers would be difficult to generate, the Court is more inclined to consider the information to be confidential and to deserve protection.
Absent a written agreement to the contrary, the current law allows a regular (non-fiduciary) employee to resign from his or her position with a company, start up or join a competitive business, and immediately begin soliciting clients of his or her former employer. This is provided that the employee does not remove any physical property belonging to the former employer, including physical or electronic customer lists, pricing information, client portfolio information or the like. The employee may memorize customer names, then later look up the names of customers in the telephone book, and contact them directly for the purpose of soliciting their business in competition with the former employer. In other words, ordinarily customer names are not necessarily confidential nor is the fact that they are customers of the company. What remains confidential is the document on which their names are printed or the database on which the names are stored.
(b) Competition with Former Employer Unless there is a written contract or the former employee was a fiduciary, the former employee is entitled to compete with the former employer and solicit the former employer’s customers, so long as the former employee does so without using the former employer’s confidential information.
A fiduciary is more restricted in competing with a former employer. A fiduciary may not directly solicit business from customers of the former employer for a reasonable period of time following the termination of the employment. In most cases a fiduciary may not secure a business opportunity belonging to or offered to his or her former employer, even where the company did not and could not have taken advantage of the opportunity, and when the employee did not pursue the opportunity until after the termination of the employment relationship.
It is often difficult to determine whether an employee was sufficiently senior to be considered a fiduciary. Senior executives of the companies are likely fiduciaries. Employees who were so involved in the direction and management of a company that he or she was equivalent to a director or officer will generally be considered fiduciaries. Usually a significant senior
managerial role, involving greater responsibility than minor supervisory duties, must be established before an employee will be considered by the court to be a key employee with fiduciary obligations to the employer.
Before an individual can be considered to be a “key” employee, the following circumstances
C. EMPLOYMENT CONTRACTSEmployment contracts allow employers and employees to address up front the implied common
law duties. Written employment contracts often address such issues:
In most cases, but not all cases, the Court will enforce the terms of a written contract. In particular, the Court is wary of enforcing contracts which restrict an employee’s ability to earn income after being terminated by the employer. The Court will also not enforce a written contract which violates the Employment Standards Act, which issue will be discussed below.
(a) Confidential and Proprietary Information Written contracts stipulating what information is proprietary, and what information the employee must treat as confidential, can assist an employer to protect its information. An employer can make clear to an employee its expectations of what is confidential and remove or minimize ambiguity. A strong provision in an agreement will also act as a deterrent to an employee who may be inclined to release such information.
Simply describing particular information as confidential is not enough. Where the information was not treated as confidential or cannot reasonably be considered proprietary, the Court may decline to enforce the contract against the employee. Generally confidential information is defined in an agreement as widely as possible but confidential information does not include information which is in the public domain or information possessed by the employee before they commenced employment. Accordingly, it is important for employers to take steps to maintain the confidentiality of information it does not want third parties to know.
Whether or not confidential information is protected in a contract, proving a breach will often be difficult.
An employer may also use Confidentiality Agreements to protect and retain intellectual property developed by the employee during the course of his/her employment and require that any such interest be assigned or transfer to the employer. The scope of the protection can cover work conceived outside regular working hours and work not specifically instructed to be undertaken by the employer. This can remove any dispute as to whether the property was truly developed outside work.
(b) Non-Competition Agreements and Restrictive Covenants In general, the Court seeks to protect employers against unfair competition while protecting a former employee’s ability to earn income through fair competition with the employer. The line between what the Court considers to be fair and unfair competition is exceedingly difficult to draw and will depend on the particular facts relating to the specific employment relationship in question.
As a general rule, the Courts refuse to enforce contracts that are in restraint of trade on the basis that all interference with individual liberty of action in trading is contrary to public policy and therefore void. If a contract which interferes with trade falls within certain exceptions, the Court may enforce it. Restrictive Covenants will be enforceable only if they fall within an exception to the general rule, in that they are reasonable in the circumstances.
Restrictive covenants typically will restrain an employee from engaging in a competitive business in any capacity for a certain period of time in a certain geographic area. The Court will allow enforcement of a non-competition agreement where the restriction is reasonable with reference to the interest of the parties concerned and the interest of the public at large. The employer’s primary interest is to prevent an employee from unfairly using the employee’s confidential knowledge or special relationship to compete.
The scope of the restriction must be reasonable when viewed against each individual employee’s interests. “One size fits all” contracts are at risk of being too broad to be enforced against a specific employee unless the lowest common denominator is used.
The courts will not fix the clause if it is found to be too restrictive. The whole clause will be unenforceable. The Court will not ‘blue pencil’ restrictive covenant clauses. The term ‘blue pencil’ refers to the practice of inserting alternatives into a restrictive covenant clause. For example, the clause may state that the employee will not compete in (a) Canada or, in the alternative, (b) British Columbia, for a period of (a) 5 years, or, in the alternative, (b) one (1) year.
The Court often focuses on whether the scope of the restriction on the employee is overly broad. For example, an employer who seeks to restrain an employee from competing altogether with the employer’s business will often find that the Court will not enforce the contract. By contrast, the Court is more likely to enforce a contract which restrains an employee from contacting only those particular customers with which the employee had contact during a limited time before the termination of the employment relationship, or prohibits competition only in that aspect of the business in which the employee was involved or prohibits an employee from soliciting remaining employees. Other circumstances such as the source of
the business connection may be relevant in determining whether such clauses would be enforceable.
Restrictions which are too broad geographically, or too long in time will be unenforceable on the basis that they are an illegal restraint of trade.
D. EMPLOYMENT STANDARDS ACT IN BRITISH COLUMBIA(a) Introduction Employment standards in British Columbia are governed by the Employment Standards Act (the “Act”). The purpose of the Act is to provide employees in British Columbia with at least basic standards of compensation and conditions of employment.
The Act provides minimum standards. Employers and employees are free to enter into agreements which provide higher standards than the Act but cannot enter into an agreement which offers less than the Act.
(b) To Whom Does the Act Apply?
The Act applies to all employees in British Columbia unless the employee is specifically exempted from the Act. The exemptions are contained within the Employment Standards Regulation. Some employees, such as professional engineers and lawyers, are exempted from the operation of the Act as a whole. Other employees, such as managers and “high technology professionals” are exempt only from portions of the Act.
(c) What is the Scope of the Act?
The Act regulates the following areas:
(d) Minimum Wages The minimum wage is currently $8.00 per hour. The only exceptions to the minimum wage are in respect of live-in home support workers, live-in day camp leaders, resident caretakers and farm workers. The minimum wage is calculated on a different basis for such workers.
For employees who have no paid work experience before November 15, 2001, the first job/entry level minimum wage of $6.00 per hour applies. However, after they have worked for a
total of 500 hours with one or more employers, these employees are entitled to the regular minimum wage.
(e) Hours Of Work And Overtime The following is a table which outlines the rights of various employees.
(f) Vacations Under the Act, employees are entitled to two weeks of vacation per year after one year of employment and after five years of employment, the employee is entitled to three weeks.
After one year of employment an employee is entitled to vacation pay of 4% of his annual income and after five years of employment, 6%.
(g) Maternity Leave This part of the Employment Standards Act applies to most employees.
An employee wishing to commence maternity leave may do so commencing no sooner than 11 weeks immediately before the anticipated date of birth. The employee must request the leave in writing at least 4 weeks before the day the employee proposes to begin the leave. The employer may require that the leave request be accompanied by a medical certificate stating the expected or actual date or the date the pregnancy terminated or the reasons requesting additional leave.