How to keep your sport organization from getting into hot water - Contractual pitfalls and employee terminations

How to keep your sport organization from getting into hot water – Contractual pitfalls and employee terminations

Author: Catherine Coulter, Counsel, Dentons Canada LLP

The two biggest problems which most sport organizations encounter with their employees relate to: (i) not understanding what entitlements terminated employees have; and (ii) not having proper employment contracts or termination letters in place.  While it’s not possible to address these issues in depth in an article such as this, potential employer liability can be significantly reduced if the following general guidelines are taken into account:

  1. Terminations for cause are rarely upheld by Canadian courts and should only be considered in extreme circumstances. More often than not, employees who are being terminated, whether for performance, restructuring or lack of fit, will need to be terminated “without cause” and provided with notice of termination or pay in lieu of notice.
  2. Unless an employee has entered into an employment agreement with a valid termination provision, the employee will probably be owed what is called “common law notice” on termination. Common law notice is a discretionary amount determined by the courts with reference to things like an employee’s age, length of service, position, seniority, and ability to mitigate damages by finding comparable employment.  Common law notice is usually significantly more than the statutory amounts owed under applicable provincial employment standards legislation and although there’s no rule of thumb for calculating common law notice, it is not unusual for it to approximate 1 month of notice or pay in lieu of notice for each year of employment.
  3. The best way to minimize the risk of a common law notice award is for sport organizations to ensure that their employees have all signed employment agreements with valid termination provisions that minimize liability. The issue of what is or isn’t a valid termination provision is constantly changing and accordingly, it is critically important to have an employment lawyer assist with the drafting of template employment agreements.
  4. Even if your sport organization’s employees have signed an employment agreement which restricts their entitlements on termination to statutory minimums under applicable provincial legislation or some other greater amount, it’s important to know that things like incentive bonuses and commissions will also need to be paid through the statutory notice period unless the employment agreement, bonus plan and/or commission plan have also been very carefully drafted.
  5. For sport organizations in Ontario, termination provisions must specify that any insured benefits coverage will continue through the statutory notice period, failing which the courts will set the employment agreement aside and instead award the employee common law notice.
  6. If a sport organization wants to ensure that it will not be subjected to a claim for wrongful dismissal or discrimination post-termination, it is best to try to obtain a release from the terminated employee. Note that a release may not be sought in exchange for statutory minimums under applicable provincial legislation or for amounts which have been promised under contract, and that some additional amount or benefit must be offered to the employee in exchange for the signing of the release.
  7. Sport organizations must ensure that employees sign their employment agreements prior to their start date in order for them to be valid. If an employee works for even just 1 hour before signing his or her employment agreement, the agreement may well be set aside and common law notice awarded.  Accordingly, if sport organizations want their existing employees to sign an employment agreement after having commenced work, they must offer up some sort of consideration for signing such as a promotion and salary increase and/or a signing bonus.
  8. The nature of funding for sport organizations is such that many organizations enter into a series of short-term contracts with their employees. It is important to know that the courts will usually treat a series of short-term contracts as an indefinite term employment contract, which can increase the amount of notice owing to a terminated employee.
  9. The above complexities sometimes lead sport organizations to hire individuals as independent contractors rather than employees. A future column will deal with this issue in more detail but it is important to note that: (i) incorrectly classifying a worker as an independent contractor can potentially lead to tax liabilities and larger notice of termination packages; and (ii) Canadian courts are beginning to recognize a new category of workers called “dependent contractors”, who look a lot like independent contractors but are entitled to notice of termination packages in line with employees.
  10. Many sport organizations hire unpaid interns to provide services. While each province has legislation that is somewhat different, it is important to know that most interns must be paid at least minimum wage and that the test for defining an individual as an unpaid intern can be quite stringent.

In short, employment agreements are the most important piece of paperwork which sport organizations will enter into with their employees, and they should be carefully trained by an expert in employment law.  Although it is not possible to provide SIRCuit’s readers with a template form of employment agreement due to the fact that each such agreement should be unique to the organization, employee and circumstances of hire, a template form of termination letter has been included which may be of assistance in the event of employee terminations on a without cause basis.

SIRCuit template termination letter and release

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