Legal Contracts for Temporary Employment Between an Agency and Client Canada

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                                                                                   FEBRUARY          2009



FOCUS ON LABOUR RELATIONS AND EMPLOYMENT LAW

Managing your workplace: ‘ The Times, They Are A-Changin’ ’
                     Irv Kleiner         enforceable if any of the significant     the covenant and have it apply to
                                         terms are ambiguous. In the case of       specific parts of the Greater
                     The economic        Shafron v. KRG Insurance Brokers          Vancouver area.
                      landscape in the   (Western) Inc., the High Court held          The Supreme Court of Canada
                      province will      that to ensure the firm                   reversed the Court of Appeal and held
                      continue to        establishment of the scope of an          that “notional severance” cannot be
                      undergo            employee’s obligations not to             applied to a restrictive covenant. The
                      significant        compete after termination, the courts     Court recognized that restrictive
changes in the coming months. In         will not repair contractual terms that    covenants are restraints of trade and
response to those changes, employers     are unclear or ambiguous. In the          generally contrary to public policy.
will be required to consider ways and    Shafron case, the employee had            The Court held that while parties are
means to retain their customer base      executed employment agreements            free to enter into contracts that
while operating more efficiently.        that contained a covenant in which        expressly provide such a limitation,
Restrictive “non-competition”            the employee agreed that for three        the covenant must be “reasonable.”
covenants are one strategy employers     years after leaving his employment        The Court further held that it is not
often use to ensure customer             for any reason other than                 possible for a court to determine
retention. The use of temporary          termination without cause, he would       whether or not a covenant is
workers is a means by which              not work for an insurance brokerage       reasonable if the provision is
employers can effectively adjust the     within the Metropolitan City of           ambiguous in that it is not clear
size of their workforce in response to   Vancouver. After leaving KRG, and         what activities, timeframes, or
changing business conditions. Both       within the three-year period, he took     geographical parameters are subject
strategies must be considered in the     a job as a salesman for another           to the restriction. The Court found
context of new jurisprudence and         insurance agency in Richmond, B.C.        that a restrictive covenant that is
legislative changes.                     His former employer sued him under        ambiguous is unreasonable and as
                                         the restrictive covenant. The trial       such, unenforceable against a former
Enforceability of Restrictive
                                         judge dismissed the action, finding       employee. The Court recognized the
Covenants in Employment
                                         that the term “Metropolitan City of       distinction between restrictive
Agreements
                                         Vancouver” was not clear, certain or      covenants in agreements for the
The Supreme Court of Canada
                                         reasonable. The Court of Appeal           purchase and sale of a business and
recently determined that non-
                                         found that it could notionally “sever”    those in employment agreements.
competition covenants and other
                                         or effectively rewrite the agreement      The Court recognized that there is
restrictive covenants in an
                                         to clarify the geographic limitation in   greater freedom to contract between
employment contract are not
                                                                                                          (Continued on reverse)
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Managing your workplace... (cont’d.)     employers will undoubtedly do                             to-work employees so that they now
buyer and seller than between            everything legally possible to                            have an entitlement to the same
employer and employee and that           preserve their customer base, they                        holidays as other employees.
there is “an imbalance in power          should ensure that employment                                Temporary employment agencies
between employee and employer.” The      agreements that include a restrictive                     often charge a finder’s fee as a
absence of the payment for goodwill,     covenant are unambiguous and                              disincentive to their clients to hire
such as in the case of the sale of a     reasonable.                                               on a permanent basis a temporary
business, and the imbalance in                                                                     employee provided by the agency.
                                         Government of Ontario Introduces
bargaining power, the court held,                                                                  Under the Bill, a temporary agency
                                         Laws to Protect Temporary Help and
“justifies more rigorous scrutiny of     Agency Employees
                                                                                                   would be restricted from imposing a
restrictive covenants in employment      Bill 139, the Employment Standards                        fee in cases in which the employee
contracts as compared to those in        Amendment Act (Temporary Help                             has worked for the client for six
contracts for the sale of a business.”   Agencies) was introduced on                               months or more. The six months
   The Supreme Court confirmed that      December 9, 2008. The current                             begins on the first day the temporary
the geographic scope of the covenant,    Employment Standards Act does not                         worker performed work for the
the timeframe of the covenant, and       specifically address temporary                            agency’s client. A client would then
the economic activity sought to be       employees or what the Bill refers to                      be able to employ an assigned
restricted are relevant in assessing     as “assignment employees.”                                employee six months after the
reasonableness. However, in order for       There are more than 700,000                            commencement date without having
the covenant to be considered            people in Ontario in temporary jobs,                      to pay a finder’s fee to the agency,
reasonable, the Court said the           many through temporary help                               regardless of the time worked for the
covenant must be clear and               agencies. There are about 1,000                           client during the six months and
unambiguous. In addition, the Court      temporary help agencies in Ontario.                       regardless of any interruption in the
also found it would be inappropriate        The primary thrust of the Bill is to                   employment.
for a court to repair a deficiently      provide more substantial protection                          Employers who engage temporary
drafted covenant in the context of       for temporary workers, including the                      employees should be aware of the
employment. In this regard, the Court    elimination of the “elect-to-work”                        changes likely to be proclaimed and
stated that:                             exemption from the holiday-pay                            of the regulation relating to holidays
                                         provisions, and the notice of                             for temporary workers.
  “Employers should not be invited to
draft overly broad restrictive           termination and severance provisions                      Irv Kleiner is head of our Labour Relations and
covenants with the prospect that the     of the Employment Standards Act.                          Employment Law Group and deals exclusively
court will sever the unreasonable        Currently, an employee who has the                        with management-side labour relations and
parts or read down the covenant to       option of electing whether or not to                      employment law. He represents public- and
what the courts consider reasonable.     work on any day of the week when                          private-sector employers in a number of
This would change the risks assumed      employment is offered is not entitled                     industries and conducts labour negotiations on
by the parties and inappropriately       to paid public holidays, nor to notice                    behalf of unionized employers.
increase the risk that an employee       of termination and statutory
will be forced to abide by an            severance pay. It should be noted that                    Irv can be reached at 416 777 5403, or

unreasonable covenant.”                  the Province has already enacted a                        ikleiner@torkinmanes.com
                                         regulation that eliminated the
  In challenging economic times
                                         public-holiday exemption for elect-
when it is likely that there will be
increasing mobility of employees
                                          The issues raised in this release by Torkin Manes Cohen Arbus LLP are for information purposes only. The
(voluntarily and otherwise), and when     comments contained in this document should not be relied upon to replace specific legal advice.
                                          Readers should contact professional advisors prior to acting on the basis of material contained herein.

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