By Puneet S. Kohli,
Business Law Group,
Simmons da Silva LLP.
Do I really need one?
It is often said, that a business’ most important asset is its employees. As with many other owner-managed businesses, dental practices rely heavily on a small group of individuals and their success is often dependent upon the dedication and support of these individuals. It should then come to no surprise that most dentists are often wary of “rocking the boat” by entering into written agreements with their staff. They fear disruption to their practice. They are also cautious because they don’t want their staff to feel insulted, threatened or mistrusted.
There are other reasons beyond morale issues that cause reluctance amongst dentists. Like many other small business owners, many dentists may not be fully aware of the complexities of Ontario’s employment law regime. Others think they are too “small” to be impacted. Some dentists view themselves primarily as medical professionals who treat and look after the well-being of their patients, and not so much as entrepreneurs running a business enterprise.
Did you know?
Both statutory and common law obligations govern the employer-employee relationship. In Ontario, the Employment Standards Act, 2000, SO 2000, c 41 (the “ESA”) imposes minimum standards for employees that must be adhered to by all employers. The minimum obligations an employer must satisfy under the ESA include pay in lieu of mandatory termination notice, continued vacation and benefit plan contributions during the termination notice period, and pro-rated severance pay. In the absence of a written employment contract, the courts, in their discretion, provide increased consideration and additional protections for employees outside of the ESA obligations, which is referred to as the “common law”.
Pay in lieu of termination notice under the ESA
Under the ESA, no employer shall terminate the employment of an employee who has been continuously employed for 3 months or more unless i) the employer gives written notice of termination in accordance with the table below, or ii) pays the employee termination pay in a lump sum equal to the amount the employee would have received had notice been given.
ESA Minimums for Termination Pay
|Minimum Termination Notice Period||Period of Employment|
|at least 1 week||less than 1 year|
|at least 2 weeks||1 year or more and fewer than 3 years|
|at least 3 weeks||3 years or more and fewer than 4 years|
|at least 4 weeks||4 years or more and fewer than 5 years|
|at least 5 weeks||5 years or more and fewer than 6 years|
|at least 6 weeks||6 years or more and fewer than 7 years|
|at least 7 weeks||7 years or more and fewer than 8 years|
|at least 8 weeks||8 years or more|
Pay in lieu of termination notice under the Common Law
Without a properly drafted employment agreement, termination notice period under the common law can be substantially longer. For instance, in Regdos v. Atlantic Dental Laboratories Ltd., the court determined the appropriate common law termination period for a 53 years old dental lab technician who has worked at a dental lab for 14.5 years. In this case, the dental lab technician, Mrs. Regdos, earned a $14.40 per hour and worked a 40 hour week at the time of dismissal. There were allegations that Mrs. Regdos was not a model employee and the court found just cause for the dismissal of Mrs. Regdos.
Even though the employer has just cause for dismissal, the employer was still found liable for damages. In assessing general damages a court will consider a number of factors, including the age of the employee, the length of employment and the availability of similar employment in the region. In this case, the court the court assessed Mrs. Regdos’ damages at 12 months of wages in lieu of notice. If there was a properly drafted employment agreement in place, the employer’s termination notice obligations would have been restricted to the minimum standards imposed by the ESA, and Mrs. Regdos would have received only 8 weeks of wages in lieu of notice.
The value of a written employment agreement
The above case should illustrate the value of having a properly drafted employment contract. A properly drafted employment contract can exclude common law obligations by expressly limiting an employer’s liability to the minimum statutory obligations imposed by the ESA.
Another feature of a properly drafted employment contract is that it addresses the nature of the employer’s business. For certain staff members, it may be necessary to include a non-solicitation and confidentiality clause for the protection of patient lists and records. Such restrictive clauses must be carefully drafted in order to be enforceable.
As such, many successful dentists find that well drafted employment agreements add substantial value to their practices, especially when their practices are up for sale. Prospective buyers will evaluate the contingent employment liability owed to each employee at the practice and subtract an equivalent amount from the purchase price. Even in today’s hot market, sophisticated buyers account for contingent employment liabilities and will pay a premium for a practice that is well-managed.
It’s probably too late for my practice or too much hassle now
If an employer wishes to enter into a written employment contract with an existing employee for the first time, or to update an existing employment contract, there are two ways to go about it.
First, the employer can offer sufficient fresh consideration to the employee to enter into a new written employment contract. This is typically a raise, bonus or promotion, but the sufficiency of the “fresh consideration” depends on the specific situation as it must be clear that the employee has obtained something of value in exchange for entering into the new employment agreement which may derogate from the employee’s existing common law rights. Alternatively, an employer can give “working notice” to the employee in accordance with the ESA and common law, and then “re-hire” the employee after the reasonable notice period has lapsed. This course may offend some employees and must be carefully managed.
Regardless of the approach, many successful dentists realize the value of this exercise as the gains far outweigh any potential short-term disruptions.
To summarize, in the absence of a written employment contract, the common law governs. It is therefore in the dental business owner’s interest to review and update employment contracts for each employee to ensure their business is legally protected and its market value is maximized. A properly drafted employment contract is akin to insurance against contingent liabilities and uncertainty, and is one of the best investments you can make in your business.
Puneet S. Kohli, BAS, LL.B., is a partner in the Business Law Group at Simmons da Silva LLP located in the Mississauga-Brampton corridor. He may be contacted at (905) 861-2819 and Puneet@sdslawfirm.com . For more information, please visit: www.sdslawfirm.com .
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