When thinking of employment law cases, it’s common for both employees and employers to make the mistake that the case verdict will be a slam dunk for the latter. After all, businesses (especially those at the enterprise level) have significantly more resources at their disposal and are able to hire legal professionals to avoid damages and mitigate the possibility of a trial in the first place. But a ruling from the Ontario Supreme Court earlier this year challenges that narrative in the Canadian landscape.
Case ONSC 2111: Perretta v Rand A Technology Corp demonstrates that large enterprises in Ontario and the rest of Canada may be making a costly error when it comes to the content of their termination clause. According to Ontario’s Employment Standards Act of 2000, employers must provide at least a minimum amount of statutory entitlements to dismissed employees. Certain contingencies may void a companies termination clause, and Perretta v Rand perfectly displays how Canadian enterprises may be inadvertently exposing themselves to increased losses.
Here’s what you need to know.
Perretta v Rand A Technology Corp
Earlier this year, Rand A Technology Corporation decided to validly terminate one of their sales staff without cause. This was legally permissible under their existing termination clause, with the staff member, Ms. Perretta, entitled to just two weeks of termination pay. Unfortunately, an HR representative from Rand made the mistake of insisting that Ms. Perretta sign a Full and Final Release in order to receive the compensation.
A fairly standard legal procedure amongst large employers, a Full and Final Release, is administered by the HR department of an enterprise to absolve the company of any claims against them that an employee may have. Unfortunately for Rand, their termination clause at the time had no sections compelling employees to sign this kind of release to receive their statutory pay. Ms. Perretta’s lawyer counseled her to reject signing the release, collect her two weeks’ pay, and then file a lawsuit against Rand. Their claim: Rand breached their own contract when the HR representative insisted that she sign the release.
Despite Rand’s defense that the insistence was a temporary, quickly-rectified mistake, the supreme court of Ontario ruled in favor of Ms. Perretta. Despite no signature being placed on a release by Ms. Perretta and the two weeks’ compensation being delivered, the court found that the initial insistence of the signature was enough to void the employment contract. As a result, Rand had to pay out half a year’s salary, increasing the cost of Ms. Perretta’s severance by over 10 times.
Implications for Enterprise Employee Relations
Upon analysis of the case, many employment law professionals believe that Perretta v Rand is just the tip of the iceberg for costly breach of contract suits levied against large enterprises. The technology firm’s costly error, experts say, is an important reminder to employers that they need to thoroughly review, internalize, and adhere to the termination clause within their employment contracts.
The Ontario Supreme Court ruling in Perretta v Rand also contains key takeaways for employers in Canada’s most populous province:
1. Making Statutory Pay Conditional on Signing a Release is a Mistake
Had the legal, HR, and employee relations professionals at Rand properly understood the legal requirements of Ontario’s Employment Standards Act, they would have known that provisioning a full and final release is in breach of the act. Not only is there a strong precedent for employees to take action against their employers in this kind of case, but it also begs the question of how many other standard termination clauses are in violation of federal and provincial employment law in Canada.
2. “Honest Mistakes” and Ignorance is Not a Legal Defence
Ignorantia legis neminem excusat. Canadian employers would do well to internalize the Latin message that ignorance of the law excuses no one, including legal entities. While it may be convenient to blame the HR representative directly, this issue is much more pervasive than the lack of adequate training for one person. Enterprises need to take concerted action to improve employee relations training and processes internally — particularly when it comes to Canadian labour law.
3. Large Companies Need Help Managing Employee Relations Disputes
The third ramification of Perretta v Rand is receiving less focus than the two preceding outcomes but is arguably more important. With many organizations experiencing rampant digitization, particularly over the last two years, many of the old processes and workflows that they rely on are now outdated. Many companies focus on improving enterprise resource planning (ERP) or asset management systems (EAM), but they neglect to consider how technology is changing employment relations. Just like machine learning, enhanced analytics, and cloud computing are improving the aforementioned systems, companies need to adopt comprehensive solutions to meet their ER needs.
Reducing Exposure with Employee Relations Software
Employee relations software systems cover numerous components of the enterprise labour experience. They help manage disciplinary procedures, reduce the burden of workplace investigations, and accurately project legal trends within the industry. In the case of Perretta v Rand A Technology Corp, an ER software system could have helped the company avoid the additional expenses and bad PR by providing HR and ER representatives with continuous labour relations learning that highlights the do’s and don’ts of the termination process.
To learn more about how employee relations software is streamlining ER processes so the professionals in Canadian enterprises can minimize the risk of a breach in termination provisions, reach out to the software experts at erNavigator today.