ROLLING OUT NEW EMPLOYMENT AGREEMENTS: WHAT COULD GO WRONG?

Authors: Elliot Saccucci, Tahir Khorasanee and Amanda Franker-Shuh (student)

BEAUTY SALON ORDERED TO PAY 7.25 MONTHS’ PAY IN LIEU OF NOTICE.

Rolling out new employment agreements gives companies an opportunity to organize their workforce, adapt to economic changes, and increase flexibility in the workplace.

Annual pay increases are highly anticipated by employees especially in this economic climate. Conducting an annual review of employees and providing this pay increase when rolling out new employment agreements can be one way for businesses to reset the employment arrangement, affording companies flexibility to adjust to changing times.

In practice, however, rolling out new employment agreements can be easier said than done. When done incorrectly, rollouts can lead to wrongful dismissal claims, lawsuits, and lost opportunities to organize the workplace.

This is what happened in a recent case from Ontario Superior Court of Justice, Chin v. Beauty Express Canada Inc, 2022 ONSC 6178. This decision helps us understand “what not to do” when presenting workers with a new employment contract. With businesses on the lookout for ways to reduce risk and achieve positive outcomes, rolling out new employment contracts should be no exception.

The Employment Agreement

Caroline Chin was an aesthetician who worked part-time at Beauty Express, a salon located inside The Bay located at the corner of Bloor and Yonge Streets in Toronto. She started working for Beauty Express in 2013 after her previous employer, Premier Salons, went bankrupt.

Caroline’s job with Beauty Express was practically identical to her former position with Premier Salons:

  • She did the same job.
  • She worked under the same management team.
  • She worked, largely, at the same location.

Over the course of her employment at Beauty Express, Caroline’s hours were gradually reduced. She worked part-time hours during the last three years of her employment, earning between $12,000.00 and $26,000.00 per year.

In 2018, a manager approached Caroline in the middle of her workday, handed her a document entitled “Employee Policies and Agreements”, and instructed her to sign and return it before the end of her shift. Caroline, who spoke English as a second language, did not have an opportunity to read the agreement which contained a termination clause limiting termination pay to entitlements under the Employment Standards Act, 2000. While Caroline wanted to take the document home to review it, she felt that doing so would cause herself trouble at work. So, she signed and returned it at the end of her shift.

Caroline was terminated without cause from Beauty Express in the latter half of 2019 at the age of 69 and was given just over 11 weeks’ working notice. At trial, she sought damages for wrongful dismissal and claimed that she had been given inadequate notice.

No Consideration, No Time

It is evident, given the above, that Caroline received no fresh consideration in return for signing the agreement. The courts have been clear that in employment agreements signed by an employee in an existing employment relationship, there must be fresh consideration. Absent fresh consideration, the termination provisions in the contract will be void and unenforceable.

Additionally, Caroline did not receive independent legal advice prior to signing the document; even though the agreement stipulated that she had the opportunity to do so, she realistically did not.

The court found that, as there was neither consideration for the new agreement nor any effort to permit Caroline to take the time and obtain the legal advice necessary to understand it, the new employment agreement was unenforceable.

Awarding Damages

Beauty Express was ordered to pay Caroline 7.25 months’ pay in lieu of notice.

Additionally, Caroline cited a number of incidents to support a claim for punitive damages:

  • Her reduction in hours;
  • Being singled out for making complaints; and
  • A post-termination meeting involving herself and other terminated employees where the president of Beauty Express, Mr. Luborsky, used obscene and crude language.

Ultimately, however, the court found no reason for an award of punitive damages. The court noted that punitive damages are not intended to police words or etiquette. While the language used in the post-termination meeting was insensitive, it was not oppressive nor demonstrably hurtful.

Takeaways for Employers

When rolling out new employment agreements, businesses should be sure to include:

  • Enforceable termination provisions;
  • Fresh consideration for existing employees; and
  • Sufficient time for employees to review the agreement and seek independent legal advice.

Rolling out new employment agreements does not have to be a difficult feat. If your business is considering rolling out new agreements, seek advice from counsel to ensure that the agreement itself and the manner of presenting it to employees is well-informed to foster best practices and reduce risk to your business.

For questions, please contact Elliot Saccucci (esaccucci@loonix.com) and Tahir Khorasanee (tkhorasanee@loonix.com).

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