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THE FACTSOn January 22, 2014, the Court of Appeal of Québec confirmed the 2012 decision of the Superior Court of Québec in Gilman v. Fieldturf Tarkett inc.2 At issue in this case was whether the payment of so-called “phantom share” bonuses were to be paid to employees whose employment was terminated by the company.The incentive program at issue was established for certain non- shareholder key employees of the company. It provided that specific amounts would be contributed to a special bonus fund upon the sale of some of the shares of the company in accordance with the provisions of a Joint Venture Agreement and, later on, of a Share Purchase Agreement. More specifically, the program provided for the conversion of additional capital contribution into a number of notional shares of the company (the “phantom shares”). When actual shares of the company were purchased, an amount was contributed to the bonus fund, that amount being equal to the value of the phantom shares at that time. The incentive program also stipulated that it was the company’s CEO, John Gilman, who had the discretion to decide which key employees would receive phantom share bonus payments and how much each would be paid.The five plaintiffs in the present action were the largest beneficiaries of this incentive program, together receiving almost 60% of the total phantom share bonus amount paid out in September 2005 and about 66% of the one paid out in March 2007. Sadly, in July of 2007, John Gilman died unexpectedly while the last payment was still to be paid.In September 2008, following a subsequent internal restructuring of the company, four of the five plaintiffs were dismissed without cause, none of them receiving a final phantom share bonus payment prior to their departure. This final payment was made in February 2009 to all employees of the company despite the fact that, in accordance with the incentive program, only key employees who were employed on December 31, 2008 qualified for the final payment.While the company accepted that these four individuals were entitled to several months’ notice of termination ending in 2009, the new CEO refused to provide them with the final phantom share bonus payment.As for the fifth plaintiff, he refused the new terms of employment proposed by the company and resigned in January 2009. He also did not receive the final phantom share bonus payment.The five plaintiffs filed an action against the company claiming that they were entitled to receive the final phantom share bonus payment.THE DECISION OF THE SUPERIOR COURT OF QUÉBECThe Superior Court granted the plaintiffs’ claim. It dismissed the company’s argument that, insofar as the bonus was payable entirely at the discretion of the CEO, the company had no obligation to make the final phantom share bonus payment to the plaintiffs. The Court held that “an employee who is terminated without cause is entitled to receive all of the benefits that accrue during the notice period, including bonuses.”3 While the Court agrees that where its payment is entirely dependent on the employer’s discretion, an employee will generally not be entitled to claim a bonus as part of his pay during the notice period, evidence that the employee regularly received a bonus in the past may rebut the argument that its attribution was discretionary.The Court goes on to conclude that an assessment of the company’s past practice demonstrates that the phantom share bonus payments had become an integral part of the plaintiffs' wages by the end of 2008. More specifically, the Court states that the plaintiffs received the 2005 and 2007 bonuses and moreover, they had a reasonable expectation that they would receive a final bonus payment at the end of 2008.Finally, the Court notes that the bonus payments were not entirely discretionary. Rather, in accordance with the Joint Venture Agreement/Share Purchase Agreement and subject to the company’s financial performance, they had to be paid whenever shares of the company were purchased. Moreover, the amount of the bonuses was based on a specific formula and the bonuses were reserved for the company’s “key employees.” The plaintiffs were, according to the trial judge, “key employees” and were undoubtedly viewed as such by John Gilman prior to his death. As such, the Court comes to the conclusion that “Gilman's past practice defined what the reasonable exercise of the CEO's discretion had become by the end of 2008.”4 As a result, insofar as the plaintiffs’ entitlement to receive the final phantom share bonus payment vested during their respective notice periods, they were eligible to receive this payment.THE DECISION OF THE COURT OF APPEAL OF QUÉBECThe Court of Appeal of Québec upheld the trial judge’s decision and held that due to John Gilman’s death, the provision of the incentive program which specifically granted him the discretionary power to decide, among other things, which key employees would receive phantom share bonus payments became ambiguous and had to be interpreted in light of the parties’ intent, the nature of 4 Ibid at para 61. power was exercised. The Court agreed that the evidence was the incentive program, and the way in which this discretionary clear that John Gilman always considered the plaintiffs to be “key employees” and that no evidence was brought forth to demonstrate that this situation changed during the period between his death and the date on which the plaintiffs’ employment was terminated. The Court added that in the circumstances, the new CEO could not “[TRANSLATION] in the good faith exercise of the discretionary power with which he was invested in Mr. Gilman’s stead” conclude that the plaintiffs ceased to be key employees after July 2007 and before they were terminated.With respect to the eligibility condition (i.e. that only “key employees” who were employed on December 31, 2008 qualified for the final payment), the Court stated that, under Quebec law, bonuses and share purchase options form part of an employee’s total compensation and, as such, they are generally taken into account as forming part of an employee’s pay during the notice period. Therefore, the plaintiffs’ termination, in the absence of a serious reason, prior to the date on which the final phantom share bonus payment became payable does not prevent them from being able to recover the amounts claimed.To read the Court of Appeal judgment, click here._________________________________________1 2014 QCCA 147.2 2012 QCCS 1429.3 Ibid at para 36.4 Ibid at para 61.

CONTENTS The 2014 Federal Budget Plan sounds the death knell for two family tax planning measures much appreciated by entrepreneurs and some professionals The Expert and the Court You signed a contract for services... with an employee? How to properly identify the relationship between the parties and what are the consequences of a wrong categorization ? Application of GAAR to a cross-border debt “clean-up” transaction: The Pièces Automobiles Lecavalier Inc. CaseTHE 2014 FEDERAL BUDGET PLAN SOUNDS THE DEATH KNELL FOR TWO FAMILY TAX PLANNING MEASURES MUCH APPRECIATED BY ENTREPRENEURS AND SOME PROFESSIONALSMartin BédardINCOME SPLITTING THROUGH A TRUST OR PARTNERSHIPFirst, the 2014 Federal Budget Plan (the “Budget”) ends the possibilities for splitting the income of trusts and partnerships in respect of business and rental income attributed to a minor child.Such income will henceforth be considered as being part of the split income of the trust or partnership and taxed at the marginal rate.As described in the Budget, the conditions of application of this new measure are as follows: the income is derived from a source that is a business or a rental property; and a person related to the minor is actively engaged on a regular basis in the activities of the trust or partnership to earn income from any business or rental property, or has, in the case of a partnership, an interest in the partnership (whether held directly or through another partnership) The structures affected by these new measures could be used by professionals conducting their activities through a partnership of which their minor children or a trust established for their benefit were members. Such structures allowed for directly or indirectly allocating a portion of the income of the partnership to the minor child and thus benefit from progressive tax rates.As of 2014, the rules governing split income will apply to these structures, which will no longer offer a tax benefit. However, it is still possible to split such income with related persons who have reached the age of majority.POST-MORTEM INCOME SPLITTING: THE TESTAMENTARY TRUSTThe Budget also puts an end to the progressive tax rates applicable to a testamentary trust, a measure which was announced in the 2013 Federal Budget Plan.Up to now, testamentary trusts were allowing their beneficiaries to benefit from several progressive tax rates. Among the tax planning possibilities associated with the availability of such progressive tax rates were the use of numerous testamentary trusts, the postponement of the completion of the administration of an estate for tax purposes or the avoidance of the Old Age Security Recovery Tax.Testamentary trusts will henceforth be uniformly taxed at their marginal tax rates. However, progressive tax rates will remain applicable in the following two cases: (i) for the thirty-six (36) first months of an estate which is a testamentary trust and (ii) in the case of a trust whose beneficiaries are eligible for the federal disability tax credit.The Budget also provides that the tax year-end of testamentary trusts must henceforth be December 31 of each year starting December 31, 2015.These measures will apply to taxation years 2016 and following.THE EXPERT AND THE COURTDominique VallièresIn the context of litigation, lawyers frequently require the testimony of experts, particularly accountants. Well presented, this evidence may have a decisive influence on the outcome of a trial. In the contrary situation, a debate on the quality of the expert or the weight to be given to his or her testimony may occur. This is why we review in this bulletin the role, qualification and credibility of the expert.THE ROLE OF THE EXPERTThe role of the expert is to express an opinion based on his or her scientific, economic or other knowledge, which exceeds that of the judge and without which it is impossible to draw from the facts the correct conclusions. In other words, when the judge is able by himself to understand the facts and draw the correct inferences, an expert is neither necessary nor admissible. For example, the calculation of the gross profits from a contract, which only constitute a mathematical operation, will not require a particular expertise and an accountant called upon to testify on that matter will be at best considered as an ordinary witness. The role of the expert is to enlighten the Court in as objective or impartial a manner as possible.THE QUALIFICATION OF THE EXPERTTo express his or her opinion, the expert must first be recognized as such by the Court. The expert will therefore be first examined respecting his or her training and experience. If the expert qualification is contested, and the Court considers that the expert is insufficiently qualified, it may refuse to hear him or her. The qualifications of the expert must be related to the matters about which he or she testifies.The training of the witness and his or her practical experience, will be considered. Although either may be enough, a really convincing expert will generally have solid training and experience, failing which, even if the Court accepts to hear him or her, less weight may be given to his or her testimony.THE WEIGHT GIVEN TO HIS OR HER OPINIONAs is the case with any other witness, the Court will have to assess the credibility of the expert, particularly in the presence of contradictory opinions. The Court may review the seriousness of the steps taken by the experts. It will give more weight to the opinion of a witness who directly noted the facts and reviewed the data than to the opinion of another witness who only relied on what he or she has been told. A mostly theoretical opinion or an opinion which only describes principles will also be given less weight. It is important for the witness to explain why the particular facts of the case allow for drawing a particular conclusion. Furthermore, in the presence of diverging schools of thought on a particular item, the Court appreciates that the expert considers them and explains why one should be favoured over the other in the situation at hand. Dogmatism, the absence of justification and the out of hand dismissal of a recognized approach will also generally be negatively perceived.This is consistent with the very basis of the role of the expert, which is to impartially and objectively enlighten the Court. The Court will want to ensure that the expert keeps the required distance and independence to issue a credible opinion. If the Court perceives that the expert is taking sides or “pleads the case” of the party who retained his or her services, his or her credibility will suffer. Thus, even though it is admissible, the testimony of the expert and his or her conduct will be more closely scrutinized if it is demonstrated, for instance, that he or she is employed by a party or expressed in the past an opinion on similar issues.Although this situation is rarer, the Court could even refuse to hear the witness if it is convinced that he or she will be unable to be impartial. Such may be the case when the expert personally advocates in favour of the position defended by a party or the fact that he or she was personally involved in similar litigation. The animosity or the closeness which may exist between the expert and a party may also negatively affect the expert. In this respect, it is important for the expert to be transparent to the party who retains his or her services.CONCLUSIONThe really useful expert is the one whose conduct may be summarized by these three words: competence, thoroughness and objectivity.YOU SIGNED A CONTRACT FOR SERVICES… WITH AN EMPLOYEE? HOW TO PROPERLY IDENTIFY THE RELATIONSHIP BETWEEN THE PARTIES AND WHAT ARE THE CONSEQUENCES OF A WRONG CATEGORIZATION?Valérie Korozs and Martin BédardThe Court of Appeal of Québec recently issued an interesting decision on this subject in the Bermex international inc. v. L’Agence du revenu du Québec case1 (“Bermex”).It must be noted that regardless of the fact that the parties have described their agreement as a contract for services or an agreement with a self-employed person, a court is not in any way bound by such a description.The courts have developed certain criteria for analyzing the legal status of a person in order to determine whether that person is an employee or a self-employed person. Among these criteria, the relationship of subordination, that is, whether a person works under the direction or control of another person, has always been decisive.What about when a person is not, strictly speaking, “under the direction or control of another person”,2 due to the fact that he or she runs the business? This is the question the Court of Appeal had to answer in the Bermex case.The Court adopted a broad interpretation of the concept of the subordination relationship by considering the degree of integration of the worker into the company, a criterion derived from the common law.THE FACTSFollowing a tax audit of four companies, the Agence du revenu du Québec (the “Agency”) concluded that Mr. Darveau, their main director and officer, did not have the status of a self-employed person but rather that of an employee. Accordingly, the Agency was of the view that the management fees paid to Mr. Darveau had to be considered employment income and therefore, had to be included in the companies’ payroll.The four companies targeted challenged the Agency’s assessments before the Court of Québec but to no avail.THE DECISION OF THE COURT OF APPEALJust like the trial judge , the Court of Appeal concluded that the intent of the parties to enter into a service contract was not clear from the evidence in the case.The fact that Mr. Darveau was a shareholder of the appellant corporations allowed him some freedom of action, giving the impression that he acted as a self-employed person. It is not surprising that as an officer, Mr. Darveau managed his own schedule, work and compensation nor is it surprising that he was not under the direct supervision of another authority. This freedom resulted from his status as an officer and not from the contract for services upon which he was relying.The Court of Appeal placed a particular emphasis on the fact that it was the appellant companies who assumed all risk of loss and who profited from the activities: [translation] “Yet, a company does not assume the errors of an external consultant”.3 Mr. Darveau did not bring any [translation] “expertise requiring the intervention of an external person in an area that he knows better than anyone, he simply deals with the day-to-day problems of his companies, as he so acknowledges.”4CONCLUSIONAccording to the line of case law followed by the Court of Appeal in the Bermex case, one shall take criteria such as control, ownership of tools, expectation of profits and risks of loss, as well as integration into the company into consideration for the purpose of determining a person’s status as a self-employed individual or an employee.An erroneous categorization of the nature of the contract may have significant financial impacts on the company and the individual in question, both from a tax and labour law perspective. It is therefore essential to undertake a careful analysis of the true status of the person involved before the beginning of the contractual relationship._________________________________________1 2013 QCCA 1379.2 Article 2085 of the Civil Code of Québec.3 Para 59 of the Court of Appeal’s judgment.4 Para 60 of the Court of Appeal’s judgment.APPLICATION OF GAAR TO A CROSS-BORDER DEBT “CLEAN-UP” TRANSACTION: THE PIÈCES AUTOMOBILES LECAVALIER INC. CASE LAVERY, AN OVERVIEWÉric GélinasThe Tax Court of Canada recently rendered a decision dealing with the general antiavoidance rule (“GAAR”) in the context of the elimination of a cross-border debt between Greenleaf Canada Acquisitions Inc. (“Greenleaf”) and Ford US, its American parent company, prior to the sale of Greenleaf’s shares, who owed the debt, to a third party. In the case under review, Ford US subscribed for additional Greenleaf shares and Greenleaf used the proceeds from the subscription to repay its debt to Ford US.The purpose of the transactions in question was to avoid the application of section 80 of the Income Tax Act (“ITA”) upon the forgiveness of a portion of the debt. Without the debt repayment, the rules pertaining to debt parking contained in paragraphs 80.01(6) to (8) ITA would have resulted in the application of section 80 ITA in such a way as to reduce Greenleaf’s tax attributes and even add to its income the portion of the “forgiven amount” not being sheltered.The Minister of National Revenue (“Minister”) was of the view that GAAR applied to the “clean-up” transaction in such a way that Greenleaf had to realize a capital gain of $15 million on the forgiveness of the debt. Greenleaf’s tax attributes were accordingly reduced and certain adjustments to its taxable income were made pursuant to section 80 ITA.ANALYSIS OF THE COURTFrom the outset, the taxpayer acknowledged that the transactions provided it with a tax benefit, namely, the preservation of Greenleaf’s tax attributes through the avoidance of the provisions of section 80 ITA.As to whether these transactions constituted “avoidance transactions”, the taxpayer attempted, particularly through the testimony of the accounting expert, to prove that they had been carried out only for US tax and accounting purposes, and that they therefore had bona fide non-tax purposes and did not constitute avoidance transactions. The Court did not rely on this testimony because it constituted hearsay. Furthermore, the Court applied the negative inference doctrine since no representative of Ford US had testified and that the testimonies provided were deemed not to be credible.With respect to the issue of abuse, the Court agreed with the Minister’s argument to the effect that the “clean-up” transactions were abusive since they circumvented the purpose and spirit of section 80 ITA: if the debt had not been repaid using the proceeds from the subscription, the rules governing debt parking would have applied and Greenleaf’s tax attributes would have been reduced pursuant to section 80 ITA.CONCLUSIONThis decision is particularly important in a context of debt reorganization within a corporate group. The type of transactions discussed in the decision under review is frequently used. Practitioners will have to pay particular attention to the tax impact of such a transaction. When it is possible to do so, it will obviously be preferable to simply convert a debt into shares of the debtor corporation to the extent that paragraph 80(2)(g) ITA is applicable so that no forgiven amount will result from the conversion.

In Dollo v. Premier Tech Ltée,1 the Superior Court of Québec declared a clause contained in the Stock Option Plan (the “Plan”) offered by Premier Tech Ltée (“Premier Tech”) to some of its employees to be abusive and also declared Premier Tech’s conduct towards a dismissed senior executive to be oppressive within the meaning of the Canada Business Corporations Act (“CBCA”).THE FACTSIn May 1999, Premier Tech hired Christian Dollo (“Dollo”) as vice-president, finance. In 2001, Dollo was offered the opportunity to acquire stock options (hereinafter, the “Options”) of the corporation over time by participating in the Plan. Premier Tech’s shares then became publicly traded and Dollo acquired some of the shares in accordance with the Plan. In June 2004, he became president of Premier Horticulture, one of Premier Tech’s main subsidiaries.Premier Tech once again became a private corporation in February 2007. At that time, some executives holding Options, including Dollo, were asked to acquire shares. As part of the privatization of Premier Tech, new Options were offered to Dollo.During 2009, members of Premier Tech’s management team felt that Dollo’s performance fell short of the corporation’s expectations and that the relationship of trust was deteriorating. At the same time, Dollo became aware of clause 8.01.2 of the Plan, which stipulated that in the event of termination for any reason other than the death, retirement or disability of the participant, he or she would lose all of his or her Options which were vested but not yet exercised unless the Board of Directors decided otherwise. Worried about the existence of this clause, he requested information from the corporation’s management team and was reassured with respect to the possibility of losing his vested Options in the event of his termination.In August 2010, Dollo was terminated. At the time, he held 71,100 shares of the corporation and 207,619 vested Options. During the months that followed, Premier Tech and Dollo settled their disputes, with the exception of Dollo’s Options. During the fall of 2010, Dollo requested that the Board of Directors exercise its discretion under clause 8.01.2 of the Plan in order to allow him to retain his vested Options. The Board of Directors refused.In March 2011, Dollo instituted proceedings against Premier Tech and its majority shareholder. He asked the Court to declare clause 8.01.2 to be abusive and to recognize his right to exercise his vested Options (in order to collect the profits in the amount of $1,313,847). He added that Premier Tech was abusing its rights and was acting in an oppressive manner within the meaning of the CBCA. He further submitted that he had been illegally terminated and, accordingly, he claimed the value of the Options that he would have acquired and that he could have exercised during the twelve months following his termination.THE DECISION OF THE SUPERIOR COURT OF QUÉBECWAS CLAUSE 8.01.2 OF THE PLAN ABUSIVE?The Court first concluded that the Plan constituted an adhesion contract and that the context of the privatization of the corporation did not offer Dollo any real possibility to intervene with respect to the main provisions of the Plan.With regards to clause 8.01.2, the Court ruled that it was abusive and void. Following an in-depth analysis of the expert testimony, it concluded that such a clause [TRANSLATION] “is not found in the rules generally governing this type of contract” and that [TRANSLATION] “this type of clause is a rarity in the context of commercial practice.” The Court added that Dollo’s vested Options in fact constituted significant long-term incentive compensation. Under the Plan, this long-term compensation was not linked to Dollo’s performance. Rather, the last Options which were granted to Dollo in 2007 were vesting at the end of each month, regardless of his performance. The Court deemed it to be unreasonable that the use of clause 8.01.2 would cause the loss of such vested compensation. The loss of compensation that was vested in Dollo for the previous years during which Premier Tech benefited from his dedication lead the Court to conclude that clause 8.01.2 was not only unreasonable but it was also excessive.Finally, according to the Court, clause 8.01.2 was similar to a purely discretionary clause insofar as Premier Tech, in deciding to terminate Dollo, made a decision (namely, not to recognize that Dollo was entitled to exercise his vested Options) which depended entirely upon its discretion. Although the Court did not hold clause 8.01.2 to be truly purely discretionary, it was of the view that such a similarity supported it being qualified as abusive.However, the Court dismissed Dollo’s request regarding the Options he would have acquired during the twelve-month period following his termination since it would be inappropriate to provide a Plan member with “long-term compensation” to retain and motivate him while his employment was already terminated. Contractual justice demanded that this request be denied.WAS DOLLO TERMINATED WITHOUT CAUSE?The Court noted that Dollo’s termination could only be qualified as an administrative dismissal. In this context, the following steps must be followed:(1) The employee must be aware of the business’ policies and his employer’s expectations in his regard;(2) He or she must have been notified of his or her shortcomings;(3) He or she must have received the necessary support to correct him or herself and to reach his or her objectives;(4) He or she must have been provided with reasonable time to adjust;(5) He or she must have been warned about the risk of termination in the absence of improvement.The Court found that Dollo was only informed of the reasons for his dismissal following the institution of the proceedings against Premier Tech, that he received no support which would have allowed him to improve and that he had received no warning as to the risk of termination. In light of these elements, the Court was of the opinion that Dollo had been terminated without cause.WAS PREMIER TECH’S CONDUCT OPPRESSIVE WITHIN THE MEANING OF THE CBCA?The Court last reviewed the issue of whether the conduct of Premier Tech and its majority shareholder justified recourse to the oppression remedy in accordance with section 241 of the CBCA. It first established that Dollo constituted a plaintiff under the CBCA since it is possible to attribute this status to a person who was promised a portion of the share capital of a corporation. In addition, when he petitioned the Board of Directors regarding the exercise of his vested Options, Dollo was still a shareholder of Premier Tech. Finally, Dollo was a “potential shareholder” who would have been entitled to additional shares were it not for (abusive) clause 8.01.2.The Court mentioned that Dollo had legitimate expectations both of benefiting from the Plan, which constituted long-term compensation, and that his rights as an employee would be respected. According to the Court, Dollo had a right to expect that his termination be carried out in compliance with the steps provided for in the case law. Due to this non-compliance, Dollo was unable to exercise his options and protect himself from the brutal application of clause 8.01.2. The Court noted that simply declaring that clause 8.01.2 was void may not be enough to allow Dollo to benefit from the long-term compensation. In fact, [TRANSLATION] “legal and financial stumbling blocks [particularly the issue of financing the acquisition of the shares] will be found on the road to an easy resolution of this dispute.”2The Court therefore allowed the oppression remedy, concluding that the conduct of Premier Tech and its majority shareholder was abusive, and applied some remedial measures explicitly provided for at section 241 CBCA by:(1) Ordering the issuance of Premier Tech shares to Dollo;(2) Modifying the clauses of a contract to which Premier Tech was a party to settle the financing problems for the issuance of the shares (forcing Premier Tech to finance the issuance of the shares to Dollo);(3) Ordering Premier Tech’s majority shareholder to buy the shares so issued to Dollo, to reimburse Premier Tech for the financing of the issuance of the shares (that is, $612,857) and to pay the balance of the sale price to Dollo (that is, $1,313,847); and(4) Modifying clauses in the unanimous shareholders’ agreement in order to enable Dollo to receive the balance of the sale price of his shares notwithstanding the existence of certain provisions in the agreement which could have been invoked against him.For the full text of the decision (in French), click here.This decision of the Superior Court is currently on appeal._________________________________________1. 2013 QCCS 6100.2. Paragraph 356 of the decision.

Every year, several judgments are rendered in penal law cases involving occupational health and safety issues. However, judgments in an occupational health and safety context resulting from the laying of criminal negligence charges are more rare. While the sections of the Criminal Code1 which facilitate the filing of criminal negligence charges are now ten years old2, criminal negligence convictions in Quebec based on breaches of section 217.1 of the Criminal Code can still be counted on the fingers of one hand.3The most significant conviction in Canadian history is still very recent: we are referring of course to the conviction of Metron Construction Corporation ("Metron") by the Ontario Court of Appeal on September 4, 2013.4In this article, we will summarize some of the applicable concepts and highlight a few noteworthy judgments rendered in 2013 in penal and criminal law pertaining to occupational health and safety matters.SOME CONCEPTS APPLICABLE IN PENAL AND CRIMINAL OCCUPATIONAL HEALTH AND SAFETY CASESSections 236 and 237 of the Act Respecting Occupational Health and Safety5 ("AOHS") set out the main penal offences relating to occupational health and safety.Section 236 AOHS provides that every person who contravenes the AOHS or its regulations or who refuses to conform to, or incites a person not to conform to, a decision or order rendered under that statute or its regulations, is guilty of an offence and liable to fines in amounts which, in 2014, range from:6  In the case of a natural person: For a first offence, between $634 and $1,584; For a second offence, between $1,584 and $3,168; For any subsequent offence, between $3,168 and $6,336. In the case of a legal person: For a first offence, between $1,584 and $3,168; For a second offence, between $3,168 and $6,336; For any subsequent offence, between $6,336 and $12,671. As for section 237 AOHS, it provides that every person who, by an act or omission, does anything that directly and seriously compromises the health, safety or physical well-being of a worker is guilty of an offence and liable to fines in amounts which, in 2014, range from:7 In the case of a natural person: For a first offence, between $1,584 and $3,168; For a second offence, between $3,168 and $6,336; For any subsequent offence, between $6,336 and $12,671. In the case of a legal person: For a first offence, between $15,839 and $63,355; For a second offence, between $31,678 and $158,389; For any subsequent offence, between $63,355 and $316,777. The fines provided for at sections 236 and 237 AOHS are reassessed on January 1st of each year.8In order to secure a conviction for any of the offences provided for in these sections, the Commission de la santé et de la sécurité du travail ("CSST") must prove each of the essential elements of the offence in question beyond a reasonable doubt. These are strict liability offences.9With respect to the criminal law of occupational health and safety, section 217.1 of the Criminal Code imposes a duty on "[e]very one who undertakes, or has the authority, to direct how another person does work or performs a task [...] to take reasonable steps to prevent bodily harm to that person, or any other person, arising from that work or task." Where an employer breaches this duty, it may be found to have omitted to do something that it was its duty to do, within the meaning of section 219 of the Criminal Code, and may, therefore, be charged with criminal negligence. The penalties that can be imposed reflect the inherent seriousness of such an offence.10 In particular, an individual charged with criminal negligence causing death is liable to imprisonment for life.11 In the case of an organization, there is no limit to the amount of the fine which can be imposed.12NOTEWORTHY JUDGMENTS IN 2013PENAL LAWIn Commission de la santé et de la sécurité du travail v. Dollarama, s.e.c.,13 the Court of Appeal had to determine whether a limited partnership convicted under section 236 AOHS was subject to the penalties applicable to legal persons referred to in that section, or to a different penalty. This question arose because a limited partnership is not "a legal person" under Quebec law.14 The Court held that section 236 AOHS is unambiguous and establishes a clear dichotomy between natural persons and legal persons; limited partnerships do not fall in either category. It upheld the judgment of the Superior Court,15 the latter having found that, despite the legal vacuum that existed in the AOHS regarding the penalty to be imposed on a limited partnership, Dollarama was not absolved of its wrongdoing insofar as the Code of Penal Procedure16 expressly provides for the penalty which is to be imposed in such cases (albeit a penalty that is less severe than those set out in the AOHS17).On October 29, 2013, the Quebec Court of Appeal rendered another decision in Commission de la santé et de la sécurité du travail v. Coffrages CCC ltée.18 In that decision, the Court overturned the judgment of the Superior Court acquitting Coffrages CCC ltée of an offence under section 237 AOHS, and restored the judgment of the Court of Québec convicting the company of the offence.19 The Court of Québec ruled that, while the site was in compliance with the regulations, the conditions for performing certain tasks were unsafe and the equipment was inadequate. For example, the worker had received no training or advice on the method to follow and the premises were cramped and located near a ditch. The overall effect was that, in the circumstances, there was an "easily foreseeable" danger of serious injury , therefore rendering the materialization of the danger "nearly certain". Conversely, the Superior Court held that the employee's unforeseeable actions were the result of gross negligence "by a person acting with extreme recklessness", and found that the premises were safe. The Court of Appeal restored the Court of Québec's judgment and concluded that the employer was guilty of the offence.CRIMINAL LAWOn September 4, 2013, the Ontario Court of Appeal sentenced Metron to a fine of $750,000 for criminal negligence causing death.20 This was an appeal of the trial judge’s decision sentencing Metron to pay a $200,000 fine after it had pleaded guilty to criminal negligence causing death. This criminal prosecution was instituted following the collapse of a swing stage located on the 14th floor of a building on December 24, 2009, which, among other damage, caused the death of a supervisor and three employees. Since the Criminal Code applies across Canada, this decision is extremely relevant for Quebec employers.The Ontario Court of Appeal found that the fine imposed at trial was manifestly unfit. According to the Court, the trial judge placed too much emphasis on existing case law which imposed fines in relation to offences under the occupational health and safety legislation. In so doing, he did not consider the increased level of culpability inherent in a criminal conviction. In addition, the inherent gravity of the offence of criminal negligence causing death must be considered. Since the section of the Criminal Code dealing with fines imposed on organizations sets no limit and does not require the court to consider either the accused company's ability to pay or its economic viability, these were not determining factors in setting the amount of the fine.The Court added that a fine of $200,000 did not reflect the added degree of moral blameworthiness that comes with a conviction for criminal negligence causing death, the particularly serious circumstances of this case, or the serious consequences for the victims and their families. The supervisor's negligence, for whom Metron was criminally liable, was "extreme".This judgment of the Ontario Court of Appeal is the first decision of an appeal court on the subject and is particularly enlightening on the issue of the criteria which should guide the courts in determining the penalty for an offence of criminal negligence occurring in the context of a workplace accident. This is also the largest fine ever imposed on a company convicted of criminal negligence causing death. In 2008, prior to this decision, the most costly conviction was $100,000.21CONCLUSIONWe consider the judgment of the Ontario Court of Appeal in the Metron case to be a key decision rendered in 2013. The increase of the fine, upon review, to an amount nearly three times higher than the one that was originally imposed on Metron at trial is part of a clear trend aimed at differentiating the various coercive agents of the state as well as at reducing tolerance and increasing severity when dealing with employers who break the law._________________________________________1 RSC 1985, c C-46.2 Bill C-45 (An Act to amend the Criminal Code (Criminal Liability of Organizations), assented to on November 7, 2003, 2nd sess., 37th Parl. (Can.) came into force on March 31, 2004.3 There have been two cases: R. v. Transpavé, 2008 QCCQ 1598, in which the company was fined $110,000, and R. v. Scrocca, 2010 QCCQ 8218, in which the employer, a natural person, was given a conditional sentence of two years’ imprisonment less a day plus a victim fine surcharge of $100. Note that in the case of R. v. Gagné, 2010 QCCQ 12364, the accused, two natural persons, were acquitted.4 R. v. Metron Construction Corporation, 2013 ONCA 541 (“Metron”).5 CQLR, c S-2.1.6 These amounts are the figures suggested by the CSST in its guide entitled Cadre d’émission des constats d’infraction, January 2014, online: http://www.csst.qc.ca/publications/200/Documents/DC200_1053web.pdf.7 Id.8 AOHS, section 237.1.9 Strict liability offences relieve the CSST of the burden of proving the existence of the “intention” to commit the offence (“mens rea”). The accomplishment of the act targeted by the offence gives rise to a presumption that the offence was committed (R. v. Sault Ste-Marie, [1978] 2 S.C.R. 1299).10 Note that the objective of the penalty, under regulatory penal law, is not the same as under criminal law. Under the regulatory penal law in occupational health and safety matters, [translation] “the primary purpose of the penalty is to ensure compliance with the law and the prevention of offences”; it should have a “dissuasive” effect (Commission de la santé et de la sécurité du travail v. 9189-5201 Québec inc. (Monsieur Filiatreault Couvreur), 2013 QCCQ 14262). In criminal law, the penalty is more punitive and condemnatory in nature (Metron, supra, note 4, paras. 75 to 80).11 Criminal Code, section 220(b).12 Id., section 735.13 2013 QCCA 336.14 Civil Code of Québec, RLRQ c C-1991, article 2188.15 2011 QCCS 5630.16 Chapter C-25.1.17 Judgment of the Superior Court, supra, note 15, paras. 46 to 49.18 2013 QCCA 1875.19 2012 QCCS 5737.20 Metron, supra, note 4.21 R. v. Transpavé inc., supra, note 3.

On February 5, 2014, the Minister of Labour announced that as of May 1, 2014, the minimum wage will be increased by $0.20 an hour to $10.35 an hour.The hourly minimum wage of employees receiving tips will be increased to $8.90 an hour, which represents an increase of $0.15 an hour.Finally, the minimum wage payable to raspberry or strawberry pickers will continue to be established on a per kilogram picked basis. From May 1, 2014, this rate will be increased to $3.04 per kilogram for raspberry pickers and to $0.81 per kilogram for strawberry pickers.

The Court of Appeal of Québec recently ruled on the criteria for distinguishing between an employment agreement and a contract for services in the case of Bermex international inc. v. Agence du revenu du Québec.1It is worth noting that regardless of the fact that the parties labelled their agreement as a contract for services or an agreement with a self-employed worker, such a description is not binding on a court.The courts have developed certain criteria for analysing an individual’s legal status in order to determine whether he or she is an employee or a self-employed worker.Among these criteria, the relationship of subordination, that is, whether a person carries out work under the direction or control of another person, has always been a determining factor.But what if an individual is not, strictly speaking, “under the direction or control of another person”,2 due to the fact that he or she is the one running the business?This was the question the Court of Appeal was called upon to answer.This is an interesting decision because the Court adopted a liberal interpretation of the relationship of subordination by taking into account the degree of integration of the worker into the company, a criterion derived from the common law.In this article, we will benefit from the collaboration of Mtre Martin Bédard, an expert in tax law, to provide a brief overview of the tax implications which may arise from erroneously labelling the relationship between the parties.THE FACTSThis article addresses the appeal from a decision of the Court of Québec dismissing the contestation by four companies of notices of assessment issued by the Agence du revenu du Québec (the “Agence”). At the heart of the dispute over whether an actual relationship of subordination existed, and ultimately whether the individual in question was an employee rather than a self-employed worker, was the status of the principal director and officer of the appellant companies.The appellants, Bermex International (“Bermex), Finition Chez Soi (“Finition”) and Confortec 2000 (“Confortec”) carry on business in the furniture industry. These three companies are controlled by Groupe Bermex Inc. (“Groupe”) and the voting shares of Groupe are held by Gestion Richard Darveau Inc.Richard Darveau is a chartered accountant as well as the principal director and officer of the three appellant companies. He describes himself as a business management consultant.Following a tax assessment of the four companies, the Agence concluded that Mr. Darveau was not a self-employed worker but rather an employee of the companies. Accordingly, the Agence was of the view that the management fees paid to Mr. Darveau were to be considered employment income and as such, they should be included in the companies’ payroll.For the years 2003, 2004 and 2005, the management fees paid to Mr. Darveau were $800,000, $900,000 and $900,000 respectively. For his part, Mr. Darveau declared these amounts as business income on his personal tax returns.THE LOWER COURTSBermex, Finition, Confortec, and Groupe unsuccessfully contested the notices of assessment issued by the Agence.The assessments were upheld.The Court of Québec also dismissed the appeal of the assessments filed by the companies. It concluded that the assessments were presumed to be valid3 and that the appellants had the burden of [translation] “demolishing”4 this presumption, something they failed to do.Below is a non-exhaustive list of the facts arising out of the judgment of the Court of Québec:  There was no written agreement between Mr. Darveau and the companies regarding his work as a consultant; The services rendered take up approximately 85% of the time worked by Mr. Darveau; Mr. Darveau acts as a consultant for practical, daily and short-term needs; He attends the annual conventions in the industry as President and CEO of the Groupe; Mr. Darveau has the authority to give discounts to clients; He works mainly from an office on Bermex’s premises; The companies provide Mr. Darveau with secretarial, reception, photocopy, and equipment services, including paper supplies, forms, catalogues, brochures, and stationery; His travel expenses and meals are reimbursed; The companies assume the consequences of any management errors committed by Mr. Darveau; The services rendered by Mr. Darveau appear to be uniform, without any particular nuance related to the nature of each individual company’s activities; The amount of the fees are uniform from one month to another and are sometimes billed in advance without any later adjustment being made on the basis of the time actually worked;5 Mr. Darveau provided no financial statement in relation with these services.Therefore, the judge concluded that a number of elements entered into evidence and already accepted by the case law weighed heavily against the existence of a contract for services, particularly in light of the high degree of integration of Mr. Darveau into the activities of the companies.THE APPELLANTS’ ASSERTIONSThe appellants raised a number of grounds for appeal.First, they argued that the trial judge erred in dismissing an objection made against the admission into evidence of the questionnaire completed by the auditor. The form contained answers given by Mr. Guy Bouillé, the company’s controller, in the presence of Mr. Darveau.The second ground for appeal was based on the presumed validity of the notices of assessment and the burden of proof on the person or entity who wishes to challenge them. The appellants maintained that they had satisfied their burden and had rebutted the presumption of validity of the disputed notices of assessment.The appellant also argued that the intent of the parties should have been taken into consideration in determining the nature of the contract binding them. They took the position that Mr. Darveau had multiple titles, including employee, president and CEO and self-employed worker within the Groupe, but that in reality, he was simply a self-employed worker providing services to the related companies.Finally, the appellant asserted that the judge erred by failing to address the issue of the lack of a relationship of subordination between the appellants and Mr. Darveau. In their view, in the absence of such a relationship, [translation] “the analysis should not be pushed further”.6 More specifically, they were of the view that, to the extent that the companies are entirely controlled by Mr. Darveau, it would be difficult to conclude that there was a relationship of subordination between the appellants and their so-called employee.Finally, the appellants faulted the judge for importing the common law criterion of integration into Quebec law in order to determine whether an employment relationship existed between the parties.THE DECISION OF THE COURT OF APPEALa. The Admissibility of the Questionnaire :At the outset, the Court of Appeal dismissed the appellants’ argument regarding the inadmissibility of the questionnaire completed by the Agence’s auditor. According to the Court of Appeal, the trial judge was right to admit the answers provided by Mr. Bouillé and set down in writing in the form into evidence. They were verbal declarations of which the auditor had personal knowledge and, as such, they were admissible into evidence.Furthermore, the Court was of the opinion that the trial judge was in a better position to evaluate the reliability of Mr. Darveau’s statements. Having concluded that they were sufficiently reliable, the Court saw no reason to intervene in this respect.b. The Presumption of Validity of the Notices of Assessment:Again, the Court of Appeal upheld the position of the trial judge, concluding that he applied the correct test by holding that the appellants were required to [translation] “demolish” the presumption of validity with prima facie evidence demonstrating in what way the facts on which the assessment was based were incorrect.Furthermore, with respect to Mr. Darveau’s testimony, the Court noted that the assessment of a witness’ credibility is a matter for the trial judge.7c. The Intent of the Parties:As did the trial judge, the Court of Appeal concluded that the intent of the parties to enter into a contract for services was not clear from the evidence presented in the case.d. The Integration Criterion:The appellants argued that the fundamental criterion distinguishing an employment contract from a contract for services is the relationship of subordination and that, on the contrary, the evidence failed to reveal the existence of such a relationship.The trial judge concluded that a high degree of integration of the worker into the activities of the client could indicate the presence of a relationship of subordination with the company. According to this analysis, a high degree of integration points toward a relationship of subordination:8[Translation]“By allusion, the judge considers relevant the fact that a person performs work which is an integral part of the purpose of the corporation. The relationship of subordination may therefore translate into a high degree of integration of the worker into the activities of the client; this would point toward a relationship of subordination”.After discussing the position of two Quebec labour law authors and a decision of the Federal Court of Appeal, the Court of Appeal approved of the use of the criterion of the worker’s integration into the company in order to determine the existence of a legal relationship of subordination. The Court therefore confirmed that there exists no contradiction on this subject between the civil law and the common law.9The fact that Mr. Darveau is a shareholder of the appellant corporations allowed him to enjoy some liberty of action, thus giving the impression that he acts as a self-employed worker. It is not surprising that as an officer, Mr. Darveau manages his own schedule, his work, his remuneration, and that he is not directly under the supervision of another authority. This liberty was not due to the alleged contract for services, but resulted instead from his status as an officer. Accordingly, one would not be prevented from arriving at the conclusion that in the execution of his duties, Mr. Darveau was an employee and not a self-employed worker.The Court of Appeal specifically insisted on the fact that it is the appellant corporations who assumed any risk of loss and who benefited from the profits: [translation] “Indeed, a company does not assume the errors of an outside consultant”.10 Mr. Darveau brought with him no [translation] “expertise which would require the intervention of an external person in a field that that person knows better than any other, as he acknowledges, he dealt only with the daily problems of his companies.11The Court added that to accept the appellants’ theory would result in the absurd consequence that no relationship of subordination can exist between a person who controls a company and the company itself and that any agreement between the officer and the company he or she controls could not constitute an employment agreement.The appeal was therefore dismissed.TAX ASPECTSThe Court of Appeal of Québec therefore follows a jurisprudential trend which originated from the Tax Court of Canada and the Federal Court of Appeal over the last few years. The courts allowed for the integration of the common law criteria12 into the wider analysis of the Quebec control test.13 As a result, it is permissible to take into account the criteria of control, ownership of tools, expectation of profits and risk of losses as well as the integration into the company when determining a person’s status as a self-employed worker as opposed as that of an employee.Such a determination has significant consequences on tax treatment, both for the client and the worker.An employer is required to withhold provincial and federal income tax from the wages of its employees and remit the amounts deducted within regulatory deadlines. The employer is also required to withhold employee contributions to the Canada Pension Plan (CPP), Employment Insurance (EI), the Quebec Pension Plan (QPP) and the Quebec parental insurance plan (QPIP) from the employee’s wages.Finally, the employer must pay employer contributions, which are generally based upon its total payroll. Employer contributions include those to the CPP, IE, QPP and QPIP, Health Services Fund, Commission de la santé et de la sécurité du travail, Commission des normes du travail, and the Workforce Skills Development and Recognition Fund.The employer will generally be responsible for the contributions which are to be withheld from the employee’s wages, but not for non-deductible income tax, except in the case of employees who are not Canadian residents.Furthermore, the employer may be subject to fines for amounts not withheld or for unpaid contributions. At the federal level, the penalty is 10%, which may be increased to 20% in the case of repeated breaches, a breach that has been committed knowingly, or in circumstances amounting to gross negligence. At the provincial level, the penalty is 15%.Finally, the employer is required to pay interest at the prescribed rate on these amounts (the prescribed rate is currently 6%, both at the federal and provincial levels).Conversely, in the case of a self-employed worker, the co-contracting client is not required to make such payroll deductions. The self-employed worker alone is responsible for making his or her government remittances in accordance with the requirements of the Income Tax Act.However, if the self-employed worker is not a Canadian resident, payroll deductions must be made by the client. Failure to do so renders the client subject to penalties and interest.Furthermore, a self-employed worker must generally collect the GST and the QST on the services rendered to the client. A self-employed worker who would have erroneously been determined to be an employee may find himself or herself in default if he or she failed to pay these taxes and may therefore be subject to penalties of 5% on amounts due, plus 1% per month up to a maximum of 10%.Tax authorities normally have three (3) years to issue a new assessment to a taxpayer. The time period is extended to four (4) years for corporations other than Canadian-controlled private corporations, such as public corporations or corporations controlled by non-residents. However, this period no longer applies where a corporation made a false or erroneous declaration. In such a case, the tax authorities are not subject to any time limit for issuing a new assessment. Such a situation may occur where the determination of the worker’s status turned out to be incorrect.In the event that an employer notices its mistake before the tax authorities intervene, it may remedy its default with respect to missed payroll deductions by making a voluntary disclosure. If the voluntary disclosure is accepted, this should limit the amounts due with respect to what should have been withheld or contributed as well as the applicable interest; the penalties will not then be claimed.It must also be noted that the investigative powers granted to Revenu Québec and the Canada Revenue Agency allow them to verify a company’s entire staff register in the event an error is found in the processing of a worker.Therefore, the choice of a worker’s status should be made by taking into account the situation of all the workers insofar as a wide-ranging verification could have a much larger impact on the audited company.CONCLUSIONThe Court of Appeal acknowledges that the subordination concept should be given a liberal interpretation. More specifically, it teaches us that it is possible to analyse and consider the integration of an individual into the activities of a company in order to determine his or her true status.The “integration” criterion is especially useful in the case of high-ranking executives, professionals or highly specialized workers insofar as the classic criterion of subordination is often absent in such cases.It should be noted that an incorrect qualification of the employment contract may have a significant financial and legal impact on both the company and the individual in question, both from a tax and an employment law perspective. It is therefore crucial to conduct a proper analysis of each individual’s true status._________________________________________1 2013 QCCA 1379.2 Article 2085 of the Civil Code of Québec.3 Under section 1014 of the Taxation Act, CQLR c I-3.4 Expression used by the trial judge and later employed by the Court of Appeal.5 At para 33 of the judgment of the Court of Appeal, the trial judge is quoted as saying [Translation] “This uniformity is surprising in the absence of a lump-sum contract”.6 Para 44 of the Court of Appeal judgment.7 The Court of Appeal note that the trial judge was of the view that Mr. Darveau’s credibility was affected by some of the answers he provided.8 Para 50 of the Court of Appeal judgment.9 Paras 53 to 56 of the Court of Appeal judgment.10 Para 59 of the Court of Appeal judgment.11 Para 60 of the Court of Appeal judgment.12 Wiebe Door Services Ltd., [1986] 2 C.T.C. 200 (C.A.F.), confirmed by 671122 Ontario Ltd. v. Sagaz Industries, [2001] 4 C.T.C. 139 (C.S.C.).13 Combined Insurance Co. v. MRN, 2007 CarswellNat 601 (C.A.F.) and Grimard v. R, [2009] 6 C.T.C. 7 (C.A.F.), reversing 9041-6868 Québec inc. v. MRN, 2005 CarswellNat 5615 (C.A.F.).

On December 13, 2013, the Supreme Court of Canada rendered its judgment in the case of IBM Canada Limited v. Waterman (2013 SCC 70). In this case, IBM wrongly dismissed Mr. Waterman, a long-time employee. Mr. Waterman had to begin collecting his pension under IBM’s defined benefit pension plan. The trial judge concluded that 20 months notice should have been given to Mr. Waterman. In calculating the damages for wrongful dismissal, the trial judge refused to deduct the pension benefits received by Mr. Waterman during the notice period. This decision was confirmed by the Court of Appeal of British Columbia.The Supreme Court was called upon to determine whether the pension benefits received by Mr. Waterman had to be deducted from the damages for wrongful dismissal which were to be paid by IBM.In a split decision (7 against 2), the majority held that they should not. According to the majority, the pension benefits paid to an employee constitute a type of benefit which generally should not serve to reduce damages that are otherwise payable for wrongful dismissal. Such benefits are of the nature of retirement savings and cannot be considered to be a compensation for loss of salary as a result of the termination of the employment contract. They further added that the parties cannot have wanted such retirement savings to be used to finance the unjust dismissal of the employee. The general compensation principle did not apply in the case under review.

CONTENT  Notifying your insurer of potential legal proceedings : A sensible measure which may help you avoid significant costs! The ABCs of Managing >Absenteeism at WorkNOTIFYING YOUR INSURER OF POTENTIAL LEGAL PROCEEDINGS: A SENSIBLE MEASURE WHICH MAY HELP YOU AVOID SIGNIFICANT COSTS!Jonathan Lacoste-JobinCompany directors sometimes have the reflex of minimizing the importance of a letter of demand or of the threat of a legal action. Fearing, for example, to see their insurance premiums increase, they sometimes decide not to notify their insurer of potential legal proceedings. This can have significant consequences and cause problems that a simple notice could have avoided.OBLIGATION TO NOTIFY THE INSURERParticularly in liability insurance matters, the insured has the obligation to notify his insurer as soon as he becomes aware of any loss, as provided under article 2470 of the Civil Code of Québec. Such is the case, for example, upon receipt of a letter of demand. If the insured neglects to notify his insurer, the insurer may, in certain circumstances, refuse to respect its own obligations.This article also provides that the insured must declare any loss “which may give rise to an indemnity”, that is, which would be covered under the insurance policy. Once again, it is best to play it safe. In fact, it is not for the insured to determine whether a loss is covered or not1. When in doubt, it is therefore prudent to notify the insurer as soon as possible upon a loss occurring, the receipt of a formal notice or a legal action.A timely notice will allow the insurer to investigate, meet with the appropriate witnesses, visit the site, hire the necessary experts, etc. It will also allow the insured to more quickly be informed of the position of the insurer as to insurance coverage.Failing to receive such a notice, an insurer sustaining injury therefrom may set up against the insured any clause of the policy providing for forfeiture of the right to indemnity. A liability insurer could thus refuse to cover the loss and refuse to defend its insured against legal proceedings.COSTS OF DEFENCEOne of the main obligations of the insurer in liability insurance matters is that of defending its insured against any proceedings covered by the insurance policy. Article 2503 of the Civil Code of Québec provides that the costs and expenses resulting from actions against the insured, including those of the defence, judicial costs, lawyers’ and expert fees, are borne by the insurer, over and above the proceeds of the insurance. This obligation is all the more important since the costs of defending a legal action may escalate rapidly even if the amount claimed is not very high.With this in mind, it is therefore prudent and advisable to notify the insurer as soon as possible in order to have him assume these costs, irrespective of the amount claimed and the chances of the proceedings being successful.DEMONSTRATION OF INJURY SUSTAINED BY THE INSURERTo invoke a late notice, the insurer must however demonstrate that it suffered an injury therefrom. It may assert, for instance, that it was prevented from investigating and that the site of the loss has been disturbed between the event and the time it received the notice2. The disappearance of exhibits or evidence which would have allowed to establish the loss, exonerate the insured or involve a third party, the death of some witnesses, etc. may also constitute an injury to the insurer3.Although the courts require from insurers convincing demonstration of the injury sustained, failure to notify the insurer may be fatal to the claim of an insured, even if he successfully defends the liability proceedings instituted against him.4CONCLUSIONAn insured has the obligation to notify his insurer of a loss as soon as he becomes aware of it. Upon receipt of a letter of demand or a notice whereby he may incur liability, the insured should notify his insurer accordingly. Failure to do so may result in the insurer refusing to take up the defence of the insured and thus put him in a position where he has to incur significant costs which he may have avoided. It is always better to be safe than sorry.________________________________1 Marcoux v. Halifax Fire Insurance, [1948] S.C.R. 278; Androutsos v. Manolakos, J.E. 2000-2046 (C.S.).2 Union canadienne Compagnie d’assurance v. Bélanger [1998] R.R.A. 685 (C.A.).3 LEMAIRE, M., Du délai d’avis et de la prescription en assurance : quelques problèmes, Développements récents en droit des assurances (2001), Service de la formation permanente du Barreau du Québec, Yvon Blais, 2001, online: EYB2001DEV220.4 Axa Boréal Assurances inc. c. Université Laval J.E. 2003-540 (C.A.); See also Gagnon v. Ratté [1996] R.R.A. 766 (C.S.).THE ABCs OF MANAGING ABSENTEEISM AT WORKMarie-Hélène JolicoeurINTRODUCTIONAbsenteeism brings with it high costs for employers, leading to losses in efficiency, productivity and even the demoralization of staff. In such a context, the employer must act quickly. This text provides an overview of the basic principles applicable to absenteeism.1The obligation to perform work is the foundation of the employment contract.2 The employer can expect work to be performed in a consistent manner and for such work to be of sufficient quality.However, a wide range of laws apply to the issue of absenteeism, sometimes making it difficult for employers to make sense of them all and to fully understand the scope of their managerial rights. In a unionized environment, such managerial rights are of course limited by the terms of the collective agreement.Generally speaking, an employer is entitled to be informed of the health of its employees , meaning that he or she may be provided with access to certain medical information. In addition, the employer has not only the right, but also the duty, under various occupational health and safety laws, to ensure that such an employee is capable of performing his or her work. The employer is also entitled to be informed of the reasons for the employee’s absence, to assess whether such justifications are reasonable, and, if necessary, to take disciplinary action.There are two forms of absenteeism, and each must be managed in a different way.UNJUSTIFIED ABSENTEEISMUnjustified absenteeism can leave the employee open to sanctions in accordance with the principle of escalating sanctions (verbal notice, written notice, short suspensions, lengthy suspensions, and dismissal).Unjustified absences are absences which are neither authorized nor justified, and include absences taken under false pretences. There are also other violations which are related to absenteeism, such as the failure to provide notice of an absence or of the fact that one will arrive late to work (even where such absence/ tardiness is justified), the unjustified and unauthorized abandonment of one’s position, the refusal to provide a valid medical certificate upon request, or the falsification or fabrication of a medical certificate.Where absences are repeated or combined with other violations, the sanction will be more severe.Note that, in the absence of specific clauses in the collective agreement on this subject, an absence for “personal reasons” is not justified.JUSTIFIED ABSENTEEISMJustified absenteeism is involuntary. In such a case, the employer’s management of the employee will be administrative rather than disciplinary in nature.For example, an employee may be absent on numerous occasions, all of which may be justified, particularly if the absences have been authorized by the employer for a valid reason (e.g., health problems), or were permitted by statute (Act Respecting Industrial Accidents and Occupational Diseases,3 Act Respecting Labour Standards4) or the collective agreement.This type of absenteeism can sometimes justify dismissal. For this to be the case, the following five (5) elements must generally be demonstrated:1) The absenteeism is excessive and lasts for a significant amount of time.In this respect, it is useful to compare the employee’s rate of absenteeism with the average rate of absenteeism within the company. While there is no magic number, an absenteeism rate fluctuating at a minimum of about 20% over a period of three (3) or four (4) years can be considered excessive.52) Little likelihood of improvement in the foreseeable future.If the employee’s absenteeism is primarily or entirely due to a single cause (e.g., chronic illness), medical evidence will be necessary and must address the prognosis, among other things. The instructions to the medical expert must be well-written so that he or she can provide a complete and substantiated opinion. Where the absence is due to multiple causes, such evidence is not required.3) The absenteeism has consequences for the business.It is advisable to document the effects of the absenteeism both on the workplace (e.g., work overload) and on the costs that it entails (e.g., overtime, new hires).4) The employee is informed of the problem and of the risk of losing his or her job.It is appropriate to meet with the employee to ensure that he or she is aware of, and to require him or her to resolve, the absenteeism problem. The employee should be informed that his or her employment may be terminated if his or her attendance does not improve.5) The employee has a disability or “handicap”6 and the employer is not able to accommodate him without undue hardship.If the employee has a “handicap” within the meaning of the Charter of Human Rights and Freedoms,7 the duty to accommodate will be triggered. For example, physical musculoskeletal limitations, alcoholism, drug addiction, bipolar illness, depression, and anxiety may all constitute “handicaps”. The employer will therefore have a duty to attempt to find a reasonable accommodation. The employee, his union, where applicable, and his colleagues must also be involved in this process. However, the employer will be relieved of its obligation if it can demonstrate that it is not possible to accommodate the employee without experiencing undue hardship. Undue hardship may result from the impact of the accommodation on other workers or from the significant costs the business may incur given its size and financial resources.MEDICAL CERTIFICATEThe employer is not entitled to require medical certificates on a systematic basis, but rather must have a legitimate interest and valid reasons for doing so. Such reasons may include:  repeated or chronic absenteeism; where questionable reasons are given for the absence; to evaluate an employee’s ability to return to work following a prolonged absence; to evaluate the employee’s ability to perform the work where there are valid reasons for doubting his or her ability (e.g. repeated falls, disorientation, blackouts).To be valid, the medical certificate must be signed by a physician and must refer to the specific dates of the absences. A mere statement that the employee was seen by a physician is insufficient.8 The employer may require a detailed medical certificate indicating a diagnosis.9CONCLUSIONWe invite you to clearly inform your employees of the company’s expectations as they relate to attendance ( punctuality, notice of absences or tardiness prior to the beginning of one’s shift, compliance with the work schedule, and the obligation to remain at one’s station for the entire shift, etc.). Employees should also be informed that they may be required not only to justify their absences, but also to provide a valid medical certificate if they cite their health as the reason for their absence.________________________________1 This text was taken from a presentation on the management of absenteeism given by Carl Lessard and Marie-Hélène Jolicoeur on November 13, 2013 at the offices of Lavery de Billy. It is not a legal opinion, nor is it comprehensive in its coverage of this issue, providing only an overview of the basic principles that apply.2 Article 2085 of the Civil Code of Québec, SQ, 1991, c. 64.3 CQLR, chapter A-3.001.4 CQLR, chapter N-1.1.5 For example: Syndicat des métallos, section locale 7625 et Dyne-A-Pak inc., D.T.E. 2012T-212.6 Section 10 of the Charter of human rights and freedoms, CQLR, chapter C-12.7 CQLR, chapter C.-12.8 Aliments Cargill et Travailleuses et travailleurs unis de l’alimentation et du commerce, section locale 500 (TUAC), D.T.E. 2010T-817 (T.A.).9 Syndicat des travailleuses et travailleurs du Pavillon St-Joseph (CSN) et Pavillon St-Joseph, D.T.E. 2010T 754 (T.A.), upheld by the Superior Court (2011 QCCS 3426).

Can an employee’s insubordination amount to repudiation of his employment contract, thus providing his employer with just and sufficient cause to dismiss him? In a judgment rendered on September 20, 2013, the Québec Court of Appeal answered this question in the negative.1The plaintiff, Pilgrim, filed a complaint pursuant to section 124 of the Act Respecting Labour Standards against his former employer alleging that he had been dismissed without just and sufficient cause. The employer, Pattison Sign Group (“Pattison”), was of the opinion that Pilgrim repudiated his employment contract. More specifically, Pattison took the position that the plaintiff’s behaviour was such that it was left with no choice but to conclude that the employment contract was terminated.The Labour Relations Board agreed with Pattison and came to the conclusion that, where an employee adopts a hostile attitude to the point of forcing his employer to dismiss him, there is repudiation of the employment contract.However, the Québec Court of Appeal concluded that the theory of contractual repudiation as a result of the actions of one party cannot be accepted in employment law insofar as the end of the employment contract would thus be based on the tacit will of the employee. The application of such a theory would have the effect of reversing the burden of proof and forcing the employee to demonstrate that he did not repudiate his contract. The Court also indicated that the application of the theory of contractual repudiation to the employment contract would run contrary to article 2094 of the Civil Code of Québec which requires that the employer must demonstrate that he dismissed the employee for a serious reason.To access the Court of Appeal’s decision, click here._________________________________________  1 Pattison Sign Group v. Pilgrim, 2013 QCCA 1610.

On September 4, 2013, the Ontario Court of Appeal ordered Metron Construction Corporation (“Metron”) to pay a fine in the amount of $750 000 for criminal negligence causing death.1 After Metron pled guilty to the offence, the trial judge ordered the company to pay a fine of $200 000. This case was the result of the collapse of a swing stage from the 14th floor of a building on December 24, 2009 which resulted in the death of a supervisor and three employees.According to the Ontario Court of Appeal, the fine which Metron was ordered to pay by the trial judge was manifestly unfit. We are of the opinion that the following aspects of the decision are particularly noteworthy. The Use of Health and Safety Case LawAccording to the Court of Appeal, the trial judge placed too much emphasis on the case law dealing with fines in the context of occupational health and safety offences (penal provisions). In so doing, the trial judge failed to consider the higher degree of moral blameworthiness associated with a criminal conviction. In addition, the intrinsic seriousness of the offence of criminal negligence causing death must be considered. Lastly, since Metron pled guilty to this offence, it could not subsequently try to diminish its liability and distance itself from the actions of the supervisor, its representative, by relying on his corporate rank or his level of management responsibility. The Company’s Ability to PayThe section of the Criminal Code related to fines for organizations does not impose any maximum amount and does not require the court to consider the company’s ability to pay.2 The ability to pay may be considered in determining the punishment but does not constitute a prerequisite for the imposition of a fine. In Metron’s case, the economic viability of the enterprise was not a determining factor necessary to establish the appropriate fine and too much emphasis had been placed on Metron’s ability to pay.The Court of Appeal concluded that a $200 000 fine did not reflect the gravity of a guilty verdict for criminal negligence causing death, the particular circumstances of the case, or the serious consequences for the victims and their families. The negligence of the supervisor, and thus Metron’s criminal responsibility, was “extreme”. A fine in the amount of $750 000 was more appropriate.This judgment of the Ontario Court of Appeal is the first of an appellate court on the subject. It is particularly enlightening as to the criteria which must guide the courts in determining the appropriate punishment for criminal negligence in the context of an occupational accident. It is also the highest fine imposed on an enterprise guilty of criminal negligence causing death, the previous record being $100 000.3For more details on the trial level judgment, please see our publication by clicking here._________________________________________  1 R. v. Metron Construction Corporation, 2013 ONCA 541. 2 Criminal Code, R.S.C. 1985, c. C-46, section 735. 3 R. v. Transpavé inc., 2008 QCCQ 1598.

On September 5, 2013, the Supreme Court of Canada allowed the motion for leave to appeal filed by the Commission des normes du travail against the decision rendered in March 2013 by the Court of Appeal of Québec in the case of Commission des normes du travail v. Asphalte Desjardins inc.1In this decision, the Court of Appeal confirmed the right of an employer to waive the resignation notice given by its employee. According to the Court, the effect of the employer’s decision to waive such notice is the immediate termination of the employment relationship without any requirement to pay to the resigning employee a termination notice or the salary to which he or she would have been entitled for the remainder of the notice period.Canada’s highest court will be called upon to rule on an interesting labour relations issue.We will keep you informed of any further developments in this matter._________________________________________  1 2013 QCCA 484 (C.A.).

On September 12, 2013, in Payette v. Guay inc.1, the Supreme Court of Canada rendered a decision which will be of interest to anyone involved in a transaction for the purchase or sale of assets. The Court shed some light on the interpretation of clauses restricting employment and post-employment competition which are contained in an agreement providing for the sale of assets but which, incidentally, includes an employment contract.Following a detailed analysis of the wording of the asset sale agreement and the circumstances surrounding its negotiation, the Supreme Court confirms that the clauses in dispute are not related to an employment contract but rather to a sale agreement. According to the Court, the essence of the principal obligations set out in the primary contract do not relate to an employment relationship insofar as such a relationship is merely incidental to the sale agreement.But that is not all: Justice Wagner, writing for the Court, confirms that in order for a non-solicitation clause negotiated as part as an asset sale agreement to be valid, it does not need to be limited in its territorial application.Here are his reasons:  The object of a non-solicitation clause is narrower than that of a non-competition clause. The non-solicitation clause creates obligations which are less restrictive than those created by a non-competition clause. While not specified, the territorial scope of the clause can easily be circumscribed by conducting an analysis of the target customers. The modern economy and new technologies no longer allow for the geographic limitation of a customer base.Accordingly, a non-solicitation clause contained in an asset sale agreement cannot be automatically invalidated due to the absence of a territorial limitation.This decision will be assessed further in an upcoming publication._________________________________________  1 2013 S.C.R. 45.

In July 2007, Allstate Insurance Company of Canada (hereinafter referred to as “Allstate”) sent a notice of change of working conditions to all its insurance agents. Allstate was then employing approximately 90 agents in Quebec.The notice was sent 26 months prior to the implementation of the changes, which were particularly related to their workplace and their remuneration scheme (the Employment Agreements of the agents and their Employee Manuals both stated that Allstate reserved the right to modify the working conditions of the agents and their remuneration scheme).One of the agents, Mr. Agostino, disagreed with said changes and resigned because he considered that he was the subject of constructive dismissal. He thereafter filed a motion to be authorized to institute a class action against Allstate in the name of the agents.In its July 3, 2013 decision1, the Superior Court dismissed the motion, among other things on the ground that a remedy for constructive dismissal is ultimately an individual claim. In fact, the facts underlying a remedy for constructive dismissal must be analyzed on a case by case basis, in the light of the facts specific to each employee who alleges having been the subject of a material and unilateral change of the essential terms and conditions of his or her employment contract._________________________________________  1 Agostino v. Allstate du Canada, compagnie d’assurances, 2013 QCCS 3049