copyright © 2013 pearson canada inc. 6 - 1 chapter 6 agency and employment legal fundamentals for...

Copyright © 2013 Pearson Canada Inc. 6 - 1

Chapter 6Agency and

Employment

Legal Fundamentals for Canadian Business

Third Edition


Learning Objectives

• Explain the roles and limitations placed on agents• Discuss the liability of principals and agents• Describe the fiduciary duty of agents and

principals• List appropriate process for disciplining and

terminating employees• Discuss the role of unions in employment

(Continued)


Learning Objectives(Continued)

• Outline the obligations of employers in providing a safe work environment

• Create a list of best practices that reduce risk of employee suing for unjust dismissal

• Consider the impact of criminal activity on business


Agency

• Agent: Someone who represents another (principal) in dealings with third party– May be an employee or an independent

contractor

• Usually involves entering into contracts on behalf of another– May instead include other services such as

filing documents or negotiation of contract


Creation of Agency

• Created when principal grants authority to agent on his/her behalf, usually by contract

• May be created gratuitously

• May be inferred from conduct of parties


Authority

• Actual authority may be expressed or implied– Expressed authority - When principal directly grants

authority to agent– Implied authority – Derived from expressed terms and

surrounding circumstances

• Apparent authority– Principal does something to lead a third party to think

agent has authority– Third party can rely on representation

(Continued)


Authority(Continued)

• Estoppel– Prevents employer from denying someone has

authority– Where principal does something to lead a third

party to reasonably believe that the “agent” has authority to act, the principal cannot later deny such authority

– Based on apparent authority

(Continued)


Authority(Continued)


Ratification

• Where agent exceeds both actual and apparent authority, principal is not bound but may still ratify (creating a binding contract)– May ratify intentionally by expressly ratifying

– May ratify inadvertently by principal taking some benefit under agreement

• Grants retroactive authority(Continued)


Ratification(Continued)

• Restrictions on ratification– Must have been possible to enter into contract

at time of ratification– Must have been possible to enter into contract

at time agent purported to act– Must ratify within reasonable time after agent’s

unauthorized conduct


Vicarious Liability

• When one person is held responsible for the torts committed by another

• Both principal and agent may be held responsible

• Where agent is employee, there will be vicarious liability if employee acting within scope of employment

(Continued)


Vicarious Liability(Continued)

• Liability for agent that is independent contractor is more restricted– Principal only liable if tort causing injury took place

during actual exercise of authority granted

– Usually restricted to fraud and negligent misstatement

– If agent passed information on innocently, then only principal who gave information is liable

(Continued)


Vicarious Liability(Continued)

• May be imposed by statute– Statute may impose liability on owner of a

vehicle when another has been given permission to use motor vehicle (either expressly or implied)


Agent – Third Party Relationship

• Generally, third party has no claim against agent

• If agent has exceeded authority, third party can sue agent for claiming authority not possessed (i.e. tort of “breach of warranty of authority”)

(Continued)


Agent – Third Party Relationship(Continued)

• Undisclosed Principal– When agent does not disclose he/she is acting

as an agent or refuses to disclose who the principal is, third party must sue the agent

– When identity of principal is learned, a (binding) choice must be made as to which party to sue

– Contract for undisclosed principal is not binding if identity of undisclosed principal is important


Agent-Principal Relationship

• Fiduciary duty – agent’s obligation to act in the best interests of the principal– Has duty of utmost good faith– Cannot take personal advantage of business

opportunity– Must disclose all conflicts of interest – Must make full disclosure of all information– Must act only for one side in a transaction

(Continued)


Agent-Principal Relationship(Continued)

• Fiduciary duty (Continued)– Must not make profit at expense of principal– Has duty of accounting– Cannot take secret commissions (criminal)– Has duty to act competently– Cannot delegate responsibilities (except where

based on certain industry practices)


End of Agency Relationship

• Actual authority normally ends when:– job is finished– agent receives different instructions– employment or agency relationship is changed

or ended• Actual authority also ends when project

becomes illegal or the principal dies, goes bankrupt, or becomes insane

(Continued)


End of Agency Relationship (Continued)

• Issue of apparent authority remains– Best to avoid apparent authority from the start– Where apparent authority exists, principal must

notify customers and suppliers who deal with agent when agency relationship ends

• Power of attorney that continues after principal becomes mentally incapacitated now possible


Employment

• Historically recognized as master-servant relationship

• Relationship now based on contract

• Substantial amount of legislation as well

• Specialized statutes deal with collective bargaining and unionized workplace


Definitions of Employment

• Statutory tests limited to operation of specific statutes

• Control Test - Historical test to determine employment– Independent contractors control their own hours and how

they do the work

– Employees work under direction of employer and can be told what to do and how to do it

(Continued)


Definitions of Employment (Continued)

• Organization Test– If the individual is an integral and essential part

of the organization, he/she is an employee– Independent contractor works for self

• Important to differentiate as employers are vicariously liable for torts within scope of employment


Obligations of Employer

• Employer must provide:– Safe workplace– Appropriate direction– Tools where appropriate– Wages– Reimbursement for expenses– Any other requirements included in

employment contract, e.g. provide medical insurance


Obligations of Employee

• Employee must:– Be reasonably competent– Have the skills claimed– Be honest, punctual, loyal– Perform the work agreed to– Owe a fiduciary duty if manager or key

employee


Termination

• Under common law, must give reasonable notice of termination (in absence of “just cause”)– May give notice or pay in lieu of notice

• Employment contract may contain terms related to termination

• Minimum statutory requirements must always be met, but often employee will receive much more

(Continued)


Termination(Continued)

• Reasonable notice– Based on length of service, importance of job,

age, likelihood of finding other employment, etc.

– Rule of thumb is one month per year of employment

– Employment Standards Acts establish minimum required notice


Notice Periods


Just Cause

• No notice of termination required if just cause dismissal

• Examples:– Being dishonest with employer or acted immorally– Convicted of crime that interferes with ability to

perform job– Disobeyed lawful instruction from employer– Committed an actionable wrong on the job– Lied on a resume

(Continued)


Just Cause(Continued)

• Incompetence– Must clearly inform employee of shortcomings and give

him/her a chance to improve– Should have regular evaluations

• Unacceptable conduct– May not constitute just cause unless very serious– Provide reprimand and counseling, etc. – Should provide progressive discipline

(Continued)


Just Cause(Continued)

• Inability to perform work– Human rights legislation requires employer to

accommodate disabled employees providing it doesn’t place unreasonable burden on business

– If disability results in permanent incapacity to return to work, employment contract will be terminated due to frustration

• Lack of work due to economic downturn is not just cause for dismissal


Wrongful Dismissal

• Usually involves disputes over whether or not adequate notice (or pay in lieu) was given

• If just cause, even if found after termination, no notice (or pay in lieu) is required

• Claim is for difference in notice received and notice that should have been given

• Recent cases severely restrict instances in which compensation may be increased if “bad faith” dismissal

(Continued)


Wrongful Dismissal(Continued)

• Any harm to the employee’s reputation may increase notice period

• Must also factor in regular bonuses and benefits

(Continued)


Wrongful Dismissal(Continued)

• Employee must make reasonable effort to mitigate losses– Damages will be reduced by whatever

employee makes during notice period

• Reinstatement usually not an option– May be possible if breach of statute – Often allowed under collective agreement


Constructive Dismissal

• By demotion, transfer, or otherwise changing conditions of employment, employee may be made so uncomfortable that he/she will quit

• Whether intentional or not, this is constructive dismissal

(Continued)


Constructive Dismissal(Continued)

• Employee can sue for wrongful dismissal

• Employee’s obligation to mitigate may require him/her to take alternate position unless impractical

• Employer should communicate with employee and try to identify appropriate arrangement


Termination by Employee

• Employee may quit for cause if– Given dangerous or illegal instructions– Not properly paid– Put into dangerous situations– Can no longer perform duties due to disability or

illness– Any important term of employment contract

breached(Continued)


Termination by Employee(Continued)

• Contract may provide for notice

• If no contract, must give reasonable notice– Usually much less than employer is required to

give unless employee has special role in business

• May be liable for wrongful or inappropriate conduct when leaving

(Continued)


Termination by Employee(Continued)

• Cannot take confidential information, customer lists, secret formulas, or practices

• Cannot persuade customers to accompany employee to new business

• Must comply with restrictive covenant in contract if reasonable


Collective Bargaining

• Workers banded together in 19th century to fight poor working conditions

• Canadian Act modelled on the U.S. Wagner Act which recognized right to organize collectively if supported by majority of workers

• Labour relations boards established to deal with disputes


Organization

• General right for employees to be members of trade union and bargain collectively– Confirmed as a right under Charter of Rights and

Freedoms

– Management and some essential services excluded

• If the required minimum percentage of workers have signed up as members, union may apply to Labour Relations Board for certification

(Continued)


Organization(Continued)

• Recognition disputes– Reduced through certification process

• Jurisdictional disputes– Disputes between unions as to who will

represent new group of employees or who will perform certain work

– Resolved by application to Labour Relations Board


Certification

• Once bargaining unit is identified and requisite number of employees sign up, union applies to board for certification– In some jurisdictions, with enough signatures, union

can be certified without a vote

– Most jurisdictions require a certification vote

• Once union is certified, employer must deal with union exclusively

(Continued)


Certification(Continued)

• Any interference with certification process is an unfair labour practice and prohibited– Criminal offence to fire or intimidate anyone from

becoming member and may trigger automatic certification

• Employers have the right to comment on organization process and its effects on business

• Employers may also join together for bargaining purposes


Bargaining

• Once certified, either party can serve notice to commence bargaining

• Members of union must ratify collective agreement for it to be effective

• Either party or the government can request mediation to assist with bargaining process– No job action allowed during mediation– If unsuccessful, mediator will “book out”

(Continued)


Bargaining(Continued)

• Agreement must include certain terms:– Any dispute during agreement (rights dispute) must be

handled through a grievance process culminating in arbitration

– Strikes and walkouts illegal during agreement

– Agreement must be at least one year in length

• First contract can be imposed by labour relations board

(Continued)


Bargaining(Continued)

• Unions often insist on union shop clause– Future employees must join union– Exception for those with religious objections

• Contract may require a closed shop– Only members of union will be hired

• Possible to have a Rand formula agreement– Not required to join union, but must pay dues and are

subject to collective agreement• Check-off provision common

– Employer deducts union dues from pay


Job Action

• Only permitted during interest dispute– Dispute over terms to be included in agreement

• Must have bargained in good faith; mediators must have booked out; must serve notice to other side

• Strike – employees withdraw services• Lockout – employer closes operations

(Continued)


Job Action(Continued)

• Employer will try to keep business running using management or replacement workers

• Picketing– Appear at job site attempting to persuade customers,

suppliers, and employees not to deal with employer

– Cannot attempt to prevent someone from crossing picket line

• Trade unions must properly represent employees


Employment Legislation

• Workers’ compensation– Employers contribute to fund that works like insurance;

pays if employee injured or becomes ill on the job

– Establishes health and safety standards in workplace

• Employment insurance – Both employer and employee contribute

– Benefits paid to unemployed workers

(Continued)


Employment Legislation(Continued)

• Human rights – Prohibits discrimination and harassment

• Employment standards – Establish minimum standards for wages, notice,

overtime, leaves, etc.– Standards cannot be waived by contract unless

higher standard is set– Establish boards to hear complaints


Supervising Employees

• Important to establish good working relationship with employees, including clear policies– Fair employment practices– Education of employees and managers– Fair disciplinary process

• Must know employee rights, including right to due process

(Continued)


Supervising Employees(Continued)

• Need process of progressive discipline– Identify problem employees– Create documentation of evidence of behaviour

pattern (with records available for subsequent litigation)

• Need regular evaluation reviews with problems identified

(Continued)



• Shoplifting and employee theft– Employee theft – Section 322 of Criminal Code– Employee mischief (e.g., sabotage) – Section

430 of Criminal Code– Fraud – Section 380 of Criminal Code– Shoplifting by customers – also theft, but

usually involves lesser amounts(Continued)



• Shoplifting and employee theft (Continued)– Detection and prevention of crime are critical

• Must balance costs against losses• Consider employee morale and customer goodwill

– Must make employees aware of surveillance to avoid violation of privacy rights

– Employees must be well-trained to deal with shoplifting

(Continued)



• Employee theft – Must respect employee rights

– May use internal or police investigation

– Must have reasonable grounds to search

– Only police can get search warrant

– Must prove beyond a reasonable doubt to prosecute

– May terminate employee for just cause

– Must not obstruct justice

(Continued)



• Employee fraud – Detection is vital

– Best to inform employees of surveillance; privacy legislation varies by province

– Lawyers should be involved at first stage (forensic audit)

– Must use great care in dealing with employee termination, confidentiality, recovery of money, etc.

– Criminal prosecution may be appropriate

copyright © 2013 pearson canada inc. 6 - 1 chapter 6 agency and employment legal fundamentals for...

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