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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

The Supreme Court of Canada recently rendered a divided decision in which it concluded that an employer’s policy imposing mandatory random alcohol testing was not justified.1 This decision is of interest to employers in Quebec since it confirms arbitral case law on the subject.BackgroundIn 2006, Irving Pulp & Paper, Ltd. (“Irving” or the “employer”) unilaterally adopted a policy on the consumption of alcohol and other drugs (the “policy”). One aspect of this policy provided that over the course of a year, ten percent (10%) of employees occupying safety-sensitive positions were to be selected at random to undergo unannounced breathalyser tests. A positive test (i.e., blood alcohol concentration greater than 0.04%) would lead to severe disciplinary action, possibly including dismissal. Moreover, refusal to submit to the test would result in immediate dismissal.The policy also provided for mandatory testing 1) if there was reasonable cause to suspect that an employee was consuming alcohol or drugs in the workplace, 2) following a workplace accident or incident in which an employee was directly involved, and 3) as part of a monitoring program for employees returning to work after voluntary treatment for substance abuse.The grievance sought to challenge only the random alcohol testing aspect of the policy as it pertained to employees occupying safety-sensitive positions.The decisions rendered by the courts belowIn first instance, the arbitration board of New Brunswick (the “Board”), weighed the employer's interest in implementing random alcohol testing as a workplace safety measure against the violation of the employees’ right to privacy which resulted from the policy. Following its analysis, the Board allowed the grievance and concluded that random testing was not justified.The Court of Queen's Bench set aside the Board's decision, and the Court of Appeal dismissed the appeal. The latter therefore recognized the employer's right to unilaterally impose this policy, given the dangerous nature of the workplace.The Supreme Court decisionThe Supreme Court restored the Board's decision. The issue at the heart of this case is whether unilaterally implementing a mandatory random alcohol testing policy constituted a valid exercise of the employer's management rights under the collective agreement. With regards to the exercise of the employers’ management rights, the Court pointed out that, in unionized workplaces, a policy imposed unilaterally by the employer must be reasonable and must fall within the scope of the management rights clause contained in the collective agreement. The Court added that when assessing the reasonableness of a policy that affects the employees' privacy, courts generally adopt a “balancing of interests” approach.This test requires one to answer the following question: “Was the benefit to the employer from the random alcohol testing policy in this dangerous workplace proportional to the harm to employee privacy?”2On the one hand, it is necessary to evaluate the risks that the employer sought to address through random alcohol testing. Such risks included both the risk associated with the particular grievor’s position as a millwright as well as the risk associated with the particular workplace. This review led the Board to conclude that the millwright’s functions presented risks and dangers in the operations performed both to the person occupying the position, to third parties, as well as to the environment and to property. As for the workplace, it was “one in which great care must be taken with safe work practices,” and, according to the Board, “the mill in normal operation is a dangerous work environment.”3That being said, the Supreme Court recalled that this conclusion is not sufficient to justify mandatory random testing:“[45] But, as previously noted, the fact that a workplace is found to be dangerous does not automatically give the employer the right to impose random testing unilaterally. The dangerousness of the workplace has only justified the testing of particular employees in certain circumstances: where there are reasonable grounds to believe that the employee was impaired while on duty, where the employee was directly involved in a workplace accident or significant incident, or where the employee returns to work after treatment for substance abuse. It has never, to my knowledge, been held to justify random testing, even in the case of “highly safety sensitive” or “inherently dangerous” workplaces like railways (Canadian National) and chemical plants (DuPont Canada Inc. and C.E.P., Loc. 28-0 (Re)(2002), 105 L.A.C. (4th) 399), or even in workplaces that pose a risk of explosion (ADM AgriIndustries), in the absence of a demonstrated problem with alcohol use in that workplace. That is not to say that it is beyond the realm of possibility in extreme circumstances, but we need not decide that in this case.”4As for evidence of an alcohol-related problem in the workplace, the Supreme Court agreed with the Board, when it noted that there had only been eight alcohol-related incidents over a 15-year period and that it had only a small impact on the safety risks in the workplace.5 Moreover, the Board was not convinced by the employer's argument that deterrence was a major benefit of random alcohol testing.6On the other hand, the employees' right to privacy must be taken into account. The Supreme Court held that the Board's position on this point was unassailable and that breathalyser testing “effects a significant inroad” on an employee’s right to privacy.7CommentsThe Supreme Court therefore upheld the Board's ruling that the employer's policy constituted an unreasonable exercise of its management rights.However, the Court added that this decision does not mean an employer can never unilaterally impose random alcohol and drug testing on all its employees in a dangerous workplace. Such a policy may well be justified if it represents a proportionate response in light of legitimate safety concerns, which could be the case if the employer were able to demonstrate increased safety concerns, such as a generalized problem of alcoholism or drug abuse in the workplace.Moreover, the Supreme Court confirms a consistent line of arbitral case law whereby arbitrators have found that when a workplace is dangerous, an employer can test an individual employee if there exists reasonable cause to believe that the employee was impaired while on duty was involved in a workplace accident or incident, or in the event an employee is returning to work after treatment for substance abuse.These principles must of course be applied on a case-by-case basis._________________________________________  1 Communications, Energy and Paperworkers Union of Canada, Local 30 v. Irving Pulp & Paper, Ltd., 2013 SCC 34. 2 Id., para. 43.  3 Id., para. 44.  4 Id., para. 45. 5 Id., paras. 46 and 47. 6 Id., para. 48.  7 Id., paras. 49 and 50.

In a recent arbitration award, an arbitrator assessed a company's internal policy which provided for the dismissal of any employee caught smoking at the employer's plant of on its property, even in the case of a first offence.1THE DISPUTEThe plaintiff worked at ADM Milling Co.’s flourmill for nine years, a mill where grain is made into flour. On October 11th, 2012, he was dismissed after having been caught smoking in the cloakroom of the facilities. To justify its decision, the employer relied on its policy prohibiting any employee from smoking in the mill or on the employer’s property, under penalty of automatic dismissal.A grievance contesting the plaintiff’s dismissal was filed. The union essentially attacked the severity of the penalty.THE EVIDENCEThe impugned policy came into effect in 2009. In general, it is aimed at preventing the risk of fire, detonation and explosion which may result from flour dust if it comes into contact with sources of ignition such as a lit cigarette. In the fall of 2012, two other employees were dismissed after smoking on the premises.The evidence showed that the safety rules, particularly as they related to the prohibition on smoking at the mill, had been explained to the employees and were posted at the time they were implemented in 2009. Moreover, the employees had received annual training as well as periodic reminders on the subject. It was also demonstrated that the main risk posed by the company’s flour-milling operations is a risk of fire, detonation and explosion which may result from contact between flour dust and a source of ignition. Furthermore, the employer presented evidence of explosions which had occurred at some of its other establishments and at other similar facilities.At the hearing, the plaintiff admitted that he had indeed smoked in the cloakroom on company’s property, a fact that he previously denied when the employer’s representatives met with him. He also acknowledged that the cloakroom was adjacent to a flour compressor and transfer room. According to his testimony, he knew about the employer’s policy as well as the goal sought by the prohibition on smoking.THE PARTIES’ ARGUMENTSThe union claimed that a number of circumstances undermined the severity of the plaintiff’s misconduct and, as a result, the penalty imposed was too severe. The union emphasized the plaintiff’s seniority, his unproblematic behaviour, that the “zero tolerance” policy failed to take into consideration the circumstances surrounding the infraction, the gravity of the misconduct in proportion to the risk, and the fact that the employer’s notion of danger is “applicable everywhere”.For its part, the employer argued that the policy adopted had been followed and applied in a uniform manner, that there was a risk of danger given the operations which were carried out in the part of the mill adjacent to the cloakroom, the fact that the plaintiff lied when he met with the employer’s representatives, and furthermore that he had failed to present any justification for his conduct._________________________________________ 1 Travailleuses et travailleurs unis de l’alimentation et du commerce, section locale 501 and ADM Milling Co., (T.A. Mtre Jean Barrette, 2013-04-09), AZ-50958802.

CONTENTS  Life Insurance Policy: How to Extract Funds from a Corporation with No Tax Impact Constructive Dismissal Analyzed in the Context of a Business Acquisition The Right of Withdrawal, a Controlled Form of Contractual Freedom Transfers of Residences Involving a Spousal Testamentary Trust LIFE INSURANCE POLICY: HOW TO EXTRACT FUNDS FROM A CORPORATION WITH NO TAX IMPACTLuc Pariseau with the collaboration of Martin Bédard, articling studentIndividual shareholders who wish to withdraw funds from a corporation can face some tax challenges that are sometimes difficult to overcome. Nevertheless, there are various ways of achieving this objective that limit or eliminate the negative tax consequences to the shareholder and the corporation, provided certain conditions are complied with. The transfer of a life insurance policy by an individual shareholder to a corporation where the two are in a non-arm’s length relationship is often an effective way of accomplishing this.The technique is simple. The individual transfers his policy to his corporation and receives a consideration equal to the fair market value of the policy, as determined by an actuary. The consideration paid by the corporation may be in the form of money or a promissory note that will be paid when the corporation has the necessary cash available. By operation of the ITA, the proceeds of disposition are deemed to be equal to the cash surrender value of the policy transferred at the time of the disposition.1The shareholder is then taxed on the difference between the cash surrender value of the policy and its adjusted cost base, and the resulting gain, if any, is considered to be income from property and not a capital gain.2 Assuming that the cash surrender value of the policy is low and that its fair market value is high, the shareholder will benefit from a significant disbursement of funds with little or no negative tax impact.The fair market value of a policy will be higher than its cash surrender value, for instance, where the insured’s health condition has deteriorated since he or she took out the policy. This will also be the case where the theoretical premium for a comparable policy would be higher than that paid for the policy in question for financial reasons attributable to the type of policy purchased or to changes in pricing.As for the corporation, it ends up making a non-deductible outlay of funds and acquiring an interest in an insurance policy with an adjusted cost base equal to its cash surrender value. Thus, upon the death of the shareholder, in addition to receiving the insurance proceeds, the corporation will also benefit from an increase in its capital dividend account equal to the indemnity received, less the adjusted cost base of the policy.3The Canada Revenue Agency acknowledges the validity of this type of planning, but seems to be uncomfortable with the result.4 It has submitted this issue to the Department of Finance which has indicated that it is studying the issue. However, no amendment has been made to the statute to date, more than 10 years after the issue was raised for the first time in 2002.In addition, there are certain advantages to the corporation holding the insurance policy and paying the premiums, particularly the fact that the after-tax cost of the premiums is often lower to the corporation than it would be to the shareholder.The foregoing analysis is obviously general in nature and a more detailed assessment is advisable for any individual who is in a position to transfer a personally owned policy to a corporation.________________________________  1 Subsection 148(7) of the Income Tax Act (“ITA”).  2 Subsection 148(1) and paragraph 56(1)(j) ITA.  3 Subsection 89(1) “capital dividend account” d) ITA.  4 CRA, Technical Interpretation 2002-0127455, “Non arm’s length disposition” (May 7, 2002); CRA, Technical Interpretation 2003-0040145, “Transfert d’une police d’assurance-vie” (October 6, 2003); ARC, Technical Interpretation 2008-0303971E5, “Transfer of a life insurance policy” (May 27, 2009).CONSTRUCTIVE DISMISSAL ANALYZED IN THE CONTEXT OF A BUSINESS ACQUISITIONGuy Lavoie and Élodie Brunet with the collaboration of Brittany Carson, articling studentIn the case of St-Hilaire c. Nexxlink inc.1 the Court of Appeal of Québec analyzed the concept of “constructive dismissal” in the specific context of a business acquisition.In this case, Nexxlink was the subject of an acquisition that resulted in a series of changes to the business, some of which affected the employment conditions of Mr. St-Hilaire. Believing that this had resulted in substantial changes to the essential conditions of his employment contract, Mr. St-Hilaire left his employment shortly after the transaction, alleging that he had been constructively dismissed. He claimed $525,000 in damages from Nexxlink.The Court of Appeal affirmed the decision of the Superior Court, holding that Mr. St-Hilaire had not been constructively dismissed.According to the criteria laid down by the Supreme Court of Canada, constructive dismissal involves [translation] “1) a unilateral decision by the employer, 2) a substantial change or changes to the essential terms of the employment contract, 3) the employee’s refusal of the changes, and 4) the employee’s departure.”2 These criteria are assessed from the perspective of a reasonable person placed in the same situation.3In the context of the transaction in this case, the change in the title of Mr. St-Hilaire’s position from vice-president, business development to vice-president, infrastructure equipment sales did not amount to a substantial change in his employment conditions nor a demotion, but rather a change in the organization of the business, which was within the management rights of Nexxlink.With respect to the changes alleged by Mr. St-Hilaire to his responsibilities and target market, these were only fears. In the context of a business acquisition, some of the senior executives’ duties may be changed or clarifi ed over time: [translation] “a period of uncertainty or adjustment is entirely foreseeable”. According to the Court, a reasonable person placed in the same context as Mr. St-Hilaire could have foreseen that he would have retained his client accounts, and that various opportunities could be expected within the new business.With regard to Mr. St-Hilaire’s compensation, it consisted primarily of a base salary of $170,000, a $40,000 bonus plan, and 20,000 stock options at the time he started his employment.Contrary to Mr. St-Hilaire’s allegations, the Court found that the criteria for awarding the annual bonus had not been substantially changed. Moreover, even if this had been the case, his employment contract expressly stated that the bonus plan could be changed simply upon the approval of the board of directors. As for the cancellation of the stock options, even if this could be considered to be a reduction in Mr. St-Hilaire’s compensation, he never complained about it before leaving the company. According to the Court, Mr. St-Hilaire undoubtedly did not feel that this was an essential condition.In conclusion, the Court of Appeal found that Mr. St-Hilaire was aware of the role that was reserved for him in the new business. The structure he complained of was temporary and uncertain. In the context of this transaction, the allegations of constructive dismissal were ill founded.The interest of this decision lies in the fact that it relativizes the concept of constructive dismissal in the specific context of a business acquisition, in addition to reiterating the principle that the structure of a business is not bound to remain static.________________________________  1 2012 QCCA 1513 (C.A.)(affi rming 2010 QCCS 2276 (S.C.)).  2 Id., para. 29, citing Farber v. Royal Trust Co., [1997] 1 S.C.R. 846 (hereinafter “Farber”).  3 Farber, para. 26.THE RIGHT OF WITHDRAWAL, A CONTROLLED FORM OF CONTRACTUAL FREEDOMCatherine MéthotThe right of withdrawal, also referred to as an “opting out” clause, is the right given contractually or by law to a party to withdraw from a transaction without justifi cation prior to it being actually entered into. Although the withdrawal clause may procure a high degree of freedom, one cannot invoke it in a cavalier manner. Indeed, a withdrawal clause cannot be used in a malicious or abusive manner, nor can it run against the requirements of good faith. Furthermore, to be valid and effective, a withdrawal clause must be enforceable and explicit.The Court of Appeal of Québec recently reminded us of these principles in the case of London v. Kyriacou.1 In this case, the owners of a day-care centre (the “Sellers”) accepted from Mrs. Kyriacou and Mrs. Teologou (the “Purchasers”) an offer to purchase the daycare centre. The sale was initially scheduled to take place on September 29, 2006. This date was thereafter postponed several times and the terms of the offer were also amended on several occasions as the months went by. Among other things, the parties agreed to increase the sale price by $150,000.00 conditionally to the day-care centre being granted a government subsidy within 15 months from the date of the sale. As soon as autumn 2006, the Sellers introduced the Purchasers to the parents of the children attending the day-care centre as being the new owners of the facility from January 2007. In May 2007, the Purchasers began operating the day-care centre and acting like true owners, particularly by having repairs made at their own cost and establishing a new educational program. From May 2007, the parties exchanged several draft sale agreements and the transaction was to take place in August 2007. However, on August 10, 2007, following receipt of a letter from government authorities confi rming that the day-care centre would be subsidized beginning in March 2008, the Sellers notifi ed the Purchasers that they were withdrawing from the negotiations. They also changed the locks of the day-care centre and denied access thereof to the Purchasers.The Purchasers brought a motion for the transfer of title before the Superior Court of Québec to force the Sellers to carry out the transaction. The Sellers opposed the motion, among other things alleging that the initial offer to purchase included an opting-out clause, which they were entitled to rely upon. The clause read as follows: “After due diligence is said and done and all conditions have been agreed upon, if one of the parties’ purchaser or vendor refuse to go ahead the other will be liable for professional fees occurred.”In the first instance, the Superior Court refused to apply the clause because the Sellers had acted in bad faith all along the negotiation process, that further, the clause was not explicit and that had it been explicit, the Sellers, by their actions (particularly by encouraging the respondents to operate the day-care centre and the substance of the discussions on the sale agreement) waived its application. The Superior Court found from the evidence that all the conditions mentioned in the original offer had been satisfied and that there had been an agreement on all the new elements raised thereafter by the Sellers. In short, the terms of the transaction had been agreed upon by the parties and it only remained to make it offi cial by executing an agreement. The Superior Court therefore ordered the parties to sign the agreement and the Court of Appeal affirmed that decision.Although including an opting-out clause in a contract or a letter of offer may constitute a very attractive strategy, the decision summarized in this bulletin articulates the importance of carefully drafting it and demonstrates that one is better to consult a professional before relying on it.________________________________  1 2013 QCCA 37.TRANSFERS OF RESIDENCES INVOLVING A SPOUSAL TESTAMENTARY TRUSTDiana DarilusThe sale of a house by a spousal testamentary trust and the purchase of a new residence in replacement of the former may result in adverse tax consequences if all required precautions are not taken prior to the fact.EXEMPTION FOR PRINCIPAL RESIDENCEWhen a spousal testamentary trust gains possession of a house following the death of a taxpayer and thereafter wishes to dispose of it, the availability of the principal residence exemption to reduce the taxable capital gain resulting from the transfer must be ascertained.Furthermore, the tax act1 provides for certain presumptions when a taxpayer disposed of a house in favour of a spousal testamentary trust through a tax rollover upon death so the trust can benefit from the principal residence exemption for the years during which the deceased taxpayer owned the house.Generally a spousal testamentary trust may benefit from the principal residence exemption upon the sale of the house for all the years during which the deceased taxpayer or the trust itself owned it, to the extent that several conditions are met.One of these conditions is that when the trust was the owner of the residence, the residence must have been ordinarily inhabited by a specified beneficiary, by the spouse or common-law partner or the former spouse or common-law partner of such beneficiary or a child of such beneficiary. A specified beneficiary generally means any person benefi cially interested in the trust who ordinarily inhabited the housing unit (or has a spouse or common-law partner or former spouse or common-law partner or a child who ordinarily inhabited the housing unit).Furthermore, prior to designating the house as principal residence for the years of ownership by the deceased taxpayer while he or she was living or by the trust itself, the trust must also ascertain that no principal residence designation on another property has been made in respect of these years, neither by the deceased person or his or her family unit, nor by a specified beneficiary or his or her family unit.MAINTENANCE OF TESTAMENTARY TRUST STATUSIn the context of a transaction for the sale and purchase of residences involving a testamentary trust, one must be careful not to jeopardize the testamentary trust status of this trust, which benefits from taxation at progressive rates.Therefore, in order to retain its testamentary trust status, no item of property must be contributed to the trust otherwise than by an individual on or after his or her death and as a consequence thereof. The trust could then lose its testamentary trust status and related tax benefits if, for example, it does not deal at the fair market value when acquiring the new residence: the seller may be considered as having made a contribution equal to the excess of the fair market value of the property over the fair market value of the consideration paid by the trust.Subject to certain exceptions, the testamentary trust status of the trust may also be lost if the trust incurs a debt or any other obligation owed to, or guaranteed by, a beneficiary of the trust (for example, the spouse of the deceased person) or another person with whom a beneficiary of the trust does not deal at arm’s length.CONCLUSIONThe tax consequences of transactions involving real property transferred by or to a spousal testamentary trust should always be carefully reviewed beforehand in order to avoid unpleasant surprises.________________________________  1 Income Tax Act.

The pre-hiring process is a key step to the viability of the employer-employee relationship. Both the employer and the applicant must not underestimate the importance of this process which establishes the basis of their contractual relationship. This process is governed by a legislative framework around which the employer must tailor its actions, establishing a balance between the necessity of collecting some of the applicant’s personal information and the applicant’s right not to be discriminated against in the course of his or her employment.In Syndicat des infirmières, inhalothérapeutes, infirmières auxiliaires du Coeur du Québec (SIIIAC Q) v. Centre hospitalier régional de Trois-Rivières2, the Court of Appeal addresses this issue by upholding the decision of arbitrator Michel Bolduc3. This decision of the Court of Appeal reiterates the principles which must guide both applicants and employers with regards to the collection of personal information during the pre-hiring process.THE FACTSThe employee previously held a position as a practical nurse at the Centre hospitalier régional de Trois-Rivières ( CHRTR ) from 1987 to 1994. He left his position in 1994 to continue his studies. It is at this time that he struggled with depression and alcohol and gambling addictions. In February 2005, after undergoing treatment to address his problems, he applied for a position as a practical nurse at the CHRTR. While completing the pre-hiring medical questionnaire, he failed to answer a question relating to his psychiatric history.A little over a year after being hired by the CHRTR, the employee was placed on leave to undergo examinations for chronic enteritis. He filed a claim to obtain wage loss insurance benefits in order to extend his leave, this time, for depression and physical illness. The employer subsequently required the employee to undergo an examination by a physician from its occupational health and safety department. After concluding the medical assessment and reviewing the employee’s past medical history, the designated physician suspected bipolar disorder and extended the employee’s leave by six weeks. In the circumstances, the physician determined it would be appropriate to obtain the psychiatric medical file of the employee.The employee’s psychiatric medical file revealed a history of depression and adaptation disorder with depressed moods for which the employee had been prescribed medication prior to February 2005. At the time the employee applied for employment as a practical nurse, he was in the midst of withdrawal from his medication. In February 2007, in light of the full extent of the employee’s medical history, the physician designated by the employer concluded that the employee presented a high risk of absenteeism and was not “medically stable” at the time of hiring 4. Noting that none of the employee’s medical history had been disclosed in the pre-hiring questionnaire, the employer dismissed the employee on March 12, 2007, on the grounds that he made false declarations.The union contested the dismissal on the grounds that the pre-hiring questionnaire violated the employee’s fundamental rights under the Charter of Human Rights and Freedoms5 (the “Charter”). According to the union, the employee should not be sanctioned for failing to answer discriminatory questions6.The employer’s principle submissions were: (i) the questions asked of the employee were justified in light of the nature of the position sought; (ii) the union had not proved an abusive use of the questionnaire; (iii) it had the right and the duty to verify that applicants possess the qualifications necessary to safely perform the tasks entrusted to them.According to the employer, the very nature of its mission requires it to be aware of the health of its employees in order to ensure the health of patients. The employer’s informed consent which was necessary for the formation of the employment contract had been vitiated by the employee’s false declarations.Arbitrator Bolduc concluded that as a result of his false declarations, the employee misled the employer. The employer’s consent had been vitiated because when hiring an employee, the employer must be in a position to establish that the applicant is able to perform his duties in an adequate and consistent manner. He therefore dismissed the grievance. The Superior Court, sitting in judicial review of this decision, concluded that the arbitrator’s decision was reasonable7.ANALYSIS OF COURT OF APPEAL'S DECISIONIn any contract, the parties each have an obligation to disclose all relevant information in order to ensure the exchange of free and informed consent in the context of their contractual relationship. For the Court of Appeal, the employee had the obligation to act in good faith in answering the pre-hiring questionnaire.However, an employee’s false declaration does not automatically result in the capital punishment that is dismissal. The justification of one’s dismissal for having made false declarations remains subject to the following , criteria developed by arbitral case law and confirmed by the Court of Appeal:1) the subject of the false declaration;2) the relation between the withheld information and the employee’s position;3) the effect of the false declaration on the employer’s consent;4) the voluntary nature of the false declaration8.These criteria are not cumulative and any one of them may be enough to justify dismissal. However, for a false declaration in a pre-hiring medical questionnaire to serve as a basis for dismissal, the questions which the employee failed to answer must be compliant with the Charter.In fact, section 18.1 of the Charter prohibits, at the pre-hiring stage, any attempt to gain information regarding any ground mentioned in section 10, including one’s race, colour, sex, pregnancy, sexual orientation, disability or the use of any means to mitigate the effects of one’s disability.Indeed, a person’s health is linked to the concept of disability set out at section 10 of the Charter. Incidentally, any question on this subject will, at first glance, constitute a discriminatory practice.However, this does not mean that an employer is not justified in collecting information on this subject. In this judgment, the Court of Appeal clarifies this position, reminding us that in such circumstances, one must demonstrate on a preponderance of probabilities that the information sought regarding the applicant’s health creates a distinction or preference based on the qualifications or skills required for the employment sought9, as permitted under section 20 of the Charter.In relying on the criteria developed by the Supreme Court10 with respect to “justified professional requirements”, the Court of Appeal teaches us that to determine whether a given qualification or skill is required by the position in accordance with section 20 of the Charter, it is necessary to evaluate the goals and objectives sought by the employer and the rational relationship they bear with the objective requirements of the position11.This is why, in the words of the Court of Appeal, [translation] “[...] the right of the employer to obtain information from the applicant must be assessed on the basis of the position sought and the tasks to be accomplished.”In the case under review, the employee had proved prima facie discrimination under section 18.1 of the Charter, but the employer succeeded in establishing the direct relationship between the questions asked and the position of practical nurse. In the absence of truthful answers to the questions asked of the employee, the employer could not adequately assess the applicant’s qualifications.Therefore, , to the extent that the collection of information is legitimate, a false declaration by an applicant on this subject may result in dismissal without it constituting a discriminatory measure.RECENT APPLICATION OF THIS DECISION IN ARBITRAL CASE LAWWithout referring directly to it, arbitrator Mtre Maureen Flynn followed the Court of Appeal’s approach in Syndicat des chauffeurs d’autobus, opérateurs de métro et employés des services connexes au transport de la STM, section locale 1983- S.C.F.P. et La STM12, rendered on April 17th, 2013.The arbitrator had to determine whether the withholding of information by the employee regarding the fact that he had, in the past, been the victim of an industrial accident and had had a herniated disk, had the effect of vitiating the employer’s consent at the hiring stage. She placed much emphasis on the fact that, by failing to disclose this information which was: 1 ) directly related to the employment, and: 2 ) of sufficient importance that it may have had an effect on the decision to hire him. The employee made a false declaration while fully aware of the consequences.CONCLUSION AND COMMENTSAlthough an employer is entitled to ask the questions necessary to guide its assessment of an applicant’s ability to perform the duties of his or her employment and to make an informed hiring decision13, the applicant is entitled to a hiring process free from discrimination.The collection of information pertaining to the health and history of an applicant must not be used to automatically exclude anyone who is not in a state of perfect health nor should it be used to discriminate in the hiring process. This collection of information must be carried out by the employer for legitimate purposes.However, an applicant must demonstrate good faith when responding to the employer’s questions. He or she cannot, when in doubt, hide information which may harm his or her application in order to claim the protection afforded to him or her by the Charter, once the subterfuge is discovered, to justify his or her false statements14.An applicant must rely on the good faith of the employer. Remedies under the Charter remain available in cases of abuse, but the Charter is not a cure-all which an applicant may subsequently rely on to justify false statements regarding things the employer had a right to know.The employer must restrict its collection of information to what is necessary to proceed with an informed assessment of the individual’s application, without abusing the process. It must rely on the applicant’s good faith, keeping in mind that any false statements pertaining to an essential part of the assessment of the required qualifications for the position being filled can ultimately be sanctioned by a justified dismissal._________________________________________1 Quote from Mr. Bernard Tapie from his hearing.2 Syndicat des infirmières, inhalothérapeutes, infirmières auxiliaires du Coeur du Québec (SIIIACQ) v. Centre hospitalier régional de Trois-Rivières, 2012 QCCA 1867 (C.A.) (application for leave to appeal to the Supreme Court of Canada denied on March 21, 2013, 2013 CanLII 14333 (S.C.C.)).3 Syndicat des infirmières, inhalothérapeutes, infirmières auxiliaires du Coeur du Québec (SIIIACQ) et Centre hospitalier régional de Trois-Rivières, AZ 50665143 (T.A.).4 Id., at par. 9.5 R.S.Q., c. C-12.6 Supra, note 2, at par. 36.7 Syndicat des infirmières, inhalothérapeutes, infirmières auxiliaires du Coeur du Québec (SIIIACQ) v. Centre hospitalier régional de Trois-Rivières, 2010 QCCS 5311 (C.S.).8 Id., at par. 60.9 Id., at par. 67.10 British Columbia (Public Service Employee Relations Commission) v. BCGSEU, [1999] 3 S.C.R. 3.11 Id.; also see: Hôpital général juif Sir Mortimer B. Davis v. Commission des droits de la personne et des droits de la jeunesse, 2010 QCCA 172 (C.A.) (application for leave to appeal to the Supreme Court of Canada denied on July 8, 2010 (no 33631)); Brossard (Town) v. Quebec (Commission des droits de la personne), [1988] 2 S.C.R.. 279.12 2013 CanLII 26264 (QC SA T).13 Syndicat des infirmières, inhalothérapeutes, infirmières auxiliaires du Coeur du Québec ( SIIIACQ) v. Centre hospitalier régional de Trois-Rivières, supra., note 3, at par. 77.14 Id., at par. 78.

It is generally understood that an employer has the authority to manage and control its employees to ensure its business runs smoothly. In exercising such authority, an employer can adopt and implement policies that govern how employees perform their work. In certain circumstances, an employer can even adopt a policy to control the physical appearance of its employees. However, this power is limited both by legislation and the employment contract. But what are the limits provided by the law with regards to this issue? A recent arbitral decision helped to answer this question.In Commission scolaire des Samares1, the policy adopted by the employer school board affected all teachers responsible for training future health professionals, primarily nurses and nurses aides. The policy provided the following:  a requirement that an employee have good personal hygiene; a prohibition against wearing a head covering (hat); a requirement that an employee’s hair colour be natural (dyed hair not permitted); a requirement that an employee’s nails be short, clean and unpolished (artificial nails not permitted); a requirement that an employee wear shoes which are closed and safe (low heels, non-slip with quiet soles); a prohibition against wearing jeans, shorts, mini-skirts and camisole-type tops; earrings, necklaces and other jewellery must be modest, solidly attached and covered; long hair has to be tied back; beards must be covered in certain circumstances.Essentially, the employer adopted this policy to ensure that its teachers provided their students with positive guidance as they would eventually be required to follow similar rules as healthcare professionals.The Arbitration Tribunal was asked to determine whether these policies were legal. In its analysis, the Tribunal discussed the various laws governing the individual freedoms of employees. First, the Charter of Human Rights and Freedoms2 provides that every person has the right to freedom of expression, respect of his or her private life, and fair and reasonable conditions of employment. The Civil Code of Québec3 provides that every person possesses personality rights, such as the right to the inviolability and integrity of his or her person and the right to privacy.The case law recognizes that an employer has the right to adopt rules regarding the physical appearance of its employees. However, in order for such rules to be valid, they must be justified by the pursuit of a serious and legitimate purpose. This will generally be found to be the case where the objective sought is the promotion or protection of workplace health and safety or the promotion of other legitimate commercial interests, such as the projection or maintenance of the company’s corporate image. The policy must also be reasonable, meaning that the employer must have acted sensibly and fairly in adopting it while giving consideration to the objective facts relevant to the quality of the services rendered by its employees. The employer must not act arbitrarily, indiscriminately, capriciously, under the guise of false pretenses, or in such a way as to infringe a right protected by law.Since, in principle, employees retain their individual fundamental rights and freedoms even while at work, the aspects of one’s physical appearance are a priori protected by the right to privacy. It is therefore necessary that: (1) the employer’s objective in setting up rules relating to physical appearance be important and legitimate; and, (2) the means used to achieve this objective are rational and proportionate, that is to say as minimally intrusive as possible while curtailing as little as possible the fundamental right in question. Note that the employer has the burden of proof in this regard.Based on these principles, the Arbitration Tribunal assessed certain aspects of the policy adopted by the employer.With respect to the requirement of good personal hygiene, the Tribunal was of the opinion that this requirement, a matter of common sense, is general in nature and constitutes a trivial interference with the employees’ rights. The fact that it is an obvious requirement in the workplace does not make it excessive or unreasonable.With respect to the rule prohibiting hair dye, the Tribunal espoused the view that it clearly infringes the employees’ right to privacy, especially since it extends beyond work hours. Moreover, this rule is more restrictive than those which govern the students’ future work environment. This rule is related more to questions of taste than it is to the profession being taught or the profession of teaching itself. In the end, this measure was irrational and the scope of the infringement was not minimal.With respect to beards, the policy requires that, in some practical classes, teachers cover them while teaching certain methods of care. The Tribunal found that this rule does not infringe any Charter rights and that it is neither unreasonable nor excessive. It is in line with the employer’s teaching methods and reflects rules governing occupational health, safety and hygiene.Similarly, the rule requiring that long hair be tied back during practical classes is reasonable, can be justified on the grounds of hygiene, and has a minimal impact. Also, in contrast to the prohibition against dyed hair, the requirement that long hair be tied back does not extend beyond work hours.With respect to nails, the policies require that they be short, clean, unpolished and not artificial. Although, at first glance, these requirements seem to constitute a priori violations of the individual’s freedom of expression and right to privacy, they are consistent with the recommendations issued by various professional bodies in the healthcare field and are, therefore, justifiable in this particular context. The same reasoning applies to the requirement that employees wear closed, non-slip shoes, which is aimed at protecting the employees’ health and safety.With respect to jewellery, including earrings and necklaces, the policy requires that they be modest, solidly attached and covered. The Tribunal held that this restriction was overbroad and imprecise due to the use of the word “modest” (a rough translation of the word “sobre” in French). The Tribunal was of the view that this restriction was more a matter of taste than a pedagogical issue, and that the infringement of freedom of expression at issue did not satisfy the criteria established by the courts.In terms of clothing restrictions, the Tribunal was of the opinion that an employer wishing to prohibit employees from wearing jeans or shorts at work must demonstrate that the purpose of such a measure is to preserve the company’s image. This may be the case where an employee’s responsibilities involve direct contact with customers or the public. In the absence of evidence to that effect, and since jeans and shorts are generally considered to be appropriate attire in public schools, this restriction was held to be unreasonable. Although the Tribunal does not expressly address it, it is our understanding that the same reasoning should apply to the prohibition of head coverings, such as hats.Finally, with respect to the rules against wearing mini-skirts and camisole-type tops, the Tribunal was of the opinion that these rules rightly addressed an issue of general common sense and decency. While these rules do infringe the right to privacy and free expression, they do so in pursuit of an important and legitimate objective. Moreover, the harmful effects of these rules are outweighed by their benefits.Insofar as some of the rules and requirements included in the employer’s policy do infringe upon the fundamental rights of the employees and moreover, their scope is sometimes inconsistent and/or disproportionate given the employer’s objective, the Arbitration Tribunal declared the policies to be invalid.To conclude, although an employer has the power to adopt and implement a policy governing its employees’ physical appearance at work, it must be based on serious, legitimate and reasonable objectives. In this regard, employers would be wise to document the process leading to the adoption of such a policy insofar as they have the burden of proving that it is well-founded and reasonable given the environment in which the employees are working._________________________________________1 Syndicat de l’enseignement de Lanaudière and Commission scolaire des Samares, D.T.E. 2012T 862.2 R.S.Q., c. C-12.3 S.Q. 1991, c. 64.

The Courts have considered the concept of constructive dismissal on many occasions. Generally, the expression “constructive dismissal” refers to situations in which an employee does not agree to a substantial change made unilaterally by his employer to one or more essential terms of his employment contract, and leaves his employment for this reason. In the case of St-Hilaire v. Nexxlink inc.,1 The Quebec court of appeal analyzed the concept of constructive dismissal in the specific context of a business acquisition. ST-HILAIRE V. NEXXLINK INC.When he began his employment in June 2004, the Plaintiff, Louis St-Hilaire, held the position of vice-president, business development with Nexxlink Inc. (hereinafter “Nexxlink” or the “employer”). Mr. St-Hilaire was responsible for major accounts and his contract provided for, in particular, a base salary of $170,000, a $40,000 bonus plan and 20,000 stock options of Nexxlink.  On December 9, 2004, Mr. St-Hilaire was notified that Bell PME, a subsidiary of Bell Canada, had acquired all the shares of Nexxlink. On December 24, 2004, Mr. St-Hilaire and all the other stock option holders learned that their stock options were cancelled as a result of this transaction. On January 31, 2005, the senior executives were informed of the functions that would be assigned to them in the new business. Mr. St-Hilaire’s new position was as vice-president, infrastructure equipment sales (responsible for the purchase and sale of infrastructure equipment). On February 4, 2005, less than two months after the transaction was completed, Mr. St-Hilaire notified the employer that he was leaving his employment because he felt that the conditions of his employment had been substantially changed. He blamed the employer for having excluded him from the integration committee, contrary to most of Nexxlink’s other senior executives. He also asserted that his new position was unrelated to his skills, that his responsibilities had been substantially reduced, and that he had not originally been hired for this type of position. He claimed that he had been constructively dismissed. In response, the employer indicated that the acquisition had no effect either on Mr. St-Hilaire’s role in the business, his responsibilities, compensation, benefits or client accounts. Since no changes to his responsibilities had been under consideration, the employer felt that Mr. St-Hilaire did not have to participate in the integration committee. Finally, the employer regarded Mr. St-Hilaire’s departure as a resignation. In June 2005, Mr. St-Hilaire filed a motion to institute proceedings in the Superior Court alleging that he had been constructively dismissed by Nexxlink and claimed $525,600 in damages2. The Superior Court dismissed this claim on the grounds that Mr. St-Hilaire had failed to show that the essential terms of his employment contract had been substantially changed, although there had been some changes to his employment conditions in certain respects.3 Mr. St-Hilaire was dissatisfied and appealed the decision. THE COURT OF APPEAL’S DECISION To begin with, the Court referred to the criteria developed by the Supreme Court of Canada in the case of Farber v. Royal Trust Co.4 to define the concept of constructive dismissal: [translation] “(1) a unilateral decision of the employer, (2) substantial changes to the essential terms of the employment contract, (3) the employee’s refusal of the changes, and (4) the employee’s departure.”5 In its analysis, the court must ask itself whether a reasonable person in the same situation as the employee would have considered there to have been a substantial change to the essential terms of his employment contract.6. The court added that in order to distinguish between the employer’s management rights and a unilateral and substantial change to an essential term of the employment contract, one must consider all the circumstances and specific features of the situation. In the context of a transaction involving two businesses, it is neither surprising nor unusual that some of the employee’s responsibilities will be modified.7. The Court then analyzed the various changes raised by Mr. St-Hilaire. Change in his title, target market and responsibilities The Court acknowledged that the demotion or loss of prestige and status of an employee within a business may be regarded as a substantial change to the essential terms of his employment contract. Mr. St-Hilaire complained that he was subjected to such treatment and referred, in this regard, to the promotion obtained by one of his colleagues and the additional responsibilities assigned to another colleague. The Court found that Mr. St-Hilaire could not claim, in the context of the sale of a business, that there was a right to maintain the entire organizational structure of the business prior to the acquisition, and that the changes made to the company’s organization were within the management rights of the employer. According to the Court, unlike the situation in the Farber case, Mr. St-Hilaire had not been demoted per se. Other employees obtained promotions due to their good work, and these changes did not amount to a substantial change to Mr. St-Hilaire’s conditions of employment. With respect to the changes to his responsibilities and target market pleaded by Mr. St-Hilaire, the Court indicated that Mr. St-Hilaire’s fears failed to materialize. In the context of a transaction, some of the senior executives’ duties may be changed or clarified over time and [translation] “a period of uncertainty or adjustment is to be fully expected.” Based on several elements in the file, it could be concluded that a reasonable person placed in the same context as Mr. St-Hilaire could have anticipated that he would have retained his client accounts, and that there would likely be various opportunities within the new business. The alleged substantial changes to the essential terms of the employment contract must be real and not only based on apprehensions. In the instant case, the Court held that a reasonable person would have concluded that he essentially retained, for the most part, the responsibilities he had previously held in his former position. Minor changes to a senior executive’s responsibilities following the acquisition of a business by a new owner are insufficient to conclude that there was a constructive dismissal. Change in the criteria for awarding his annual bonus and cancellation of his stock options The Court noted that Nexxlink had not terminated the bonus plan. However, Mr. St-Hilaire pleaded that the objectives contained in the plan had become impossible to achieve, particularly due to the changes to his responsibilities and position. The Court dismissed this argument, adding that even if the criteria for awarding the annual bonus had actually been changed as a result of the transaction, these changes could not form the basis of Mr. St-Hilaire’s action because his employment contract expressly provided that the bonus plan could be amended by approval of the board of directors alone. As for the stock options, these were part of the variable compensation and had been negotiated by Mr. St-Hilaire as an integral part of his compensation package at the time he was hired. The stock option plan expressly provided for the fair and equitable compensation of the stock options in the event of an acquisition of the business. However, even if the cancellation of the stock options could be regarded as a reduction in his compensation, before he left Nexxlink, Mr. St-Hilaire never mentioned that he considered the cancellation thereof, without compensation, to be a substantial change to the essential terms of his employment contract. Since Mr. St-Hilaire had never voiced his disagreement with the changes, the Court therefore concluded that he probably did not regard the stock options as an essential term of his contract. CONCLUSION This case is interesting mainly because it provides perspective on the concept of constructive dismissal and analyzes it in the particular context of a business acquisition. In such a context, it is reasonable to expect that there will be uncertainty and instability for a number months and changes to the business. In addition, the Court of Appeal drew an interesting parallel with the facts in Corriveau v. Sedgwick Ltd.8, in which the resignation of an executive was found to be premature in the context of a business merger. Indeed, although Mr. Corriveau had been informed that his position would become redundant after the merger, his employment conditions had not yet been changed and the employer had assured him of the possibility of employment with the new business. In the instant case, Mr. St-Hilaire was aware of what his role was intended to be in the new business and the structure he complained of was temporary and uncertain. The allegations of constructive dismissal in the context of this transaction were ill-founded. The judgment in St-Hilaire should encourage employees affected by structural changes in a business to think twice before jumping to the conclusion that they have been constructively dismissed, lest they fail the test of the “reasonable person in the same situation”. Businesses, for their part, must ensure that the changes made to an employee’s terms of employment and compensation meet the criteria of the test formulated by the Supreme Court of Canada in the Farber case._________________________________________   1 St-Hilaire v. Nexxlink inc., 2012 QCCA 1513 (C.A.).  2 The damages claimed included his base annual salary, bonuses, allowances, pay in lieu of notice, severance pay and the loss caused by the cancellation of his stock options.  3 See the judgment of the Superior Court: St-Hilaire v. Nexxlink inc., 2010 QCCS 2276 (S.Ct).  4 [1997] 1 S.C.R. 846 (hereinafter “Farber”).  5 Para. 29 of the Court of Appeal’s decision.  6 Farber, para. 26, cited by the Superior Court in para. 81 of its decision.  7 Lemieux v. Marsh Canada ltée., 2005 QCCA 1080 (C.A.).  8 D.T.E. 2003T-232 (C.A.).

Employment Conditions of Foreign Workers Share Ownership : an Overview Certificate of Intellectual Property Pertaining to Software

This publication was authored by Luc Thibaudeau, former partner of Lavery and now judge in the Civil Division of the Court of Québec, District of Longueuil. The title of this newsletter gives a good summary of the explanatory notes that serve as an introduction to Bill 14, entitled An Act to amend the Charter of the French language, the Charter of human rights and freedoms and other legislative provisions (the “Bill”). The legislator is concerned that English is being used systematically in certain workplaces. The Bill was tabled on December 5, 2012 and the proposed amendments are designed to reaffirm the primacy of French as the official and common language of Quebec.

Since the adoption of Bill C-45 amending certain provisions of the Criminal Code in March of 2004, employers have had to take on increased responsibility in the area of occupational health and safety. Indeed, the effect of sections 22.1 and 217.1 of the Criminal Code is to facilitate the laying of criminal negligence charges in cases involving the health and safety of workers.

The Québec Court of Appeal rendered an important decision on the legality of termination of employment for some 190 employees of the Wal-Mart store in Jonquière. In the context of several proceedings, which were filed to obtain compensation for those job losses, the United Food and Commercial Workers, Local 503 (hereinafter the “Union”) argued that the store’s closure in April 2005 was contrary to section 59 of the Labour Code (hereinafter the “L.C.”). This section imposes a freeze on the conditions of employment from the filing of a petition for certification until the right to lock out or to strike is exercised or an arbitration award is handed down. Essentially, the Court of Appeal was required to answer the following question: does section 59 L.C. apply to a definitive business closure?

In the era of smartphones and their ever-increasing sophisticated applications, it may be difficult for an employer to control what employees do with their cell phones while at work. What is the extent of an employer’s powers when an employee makes use of his personal cell phone? Does an employer have the right to limit or forbid cell phone use in particular circumstances? (Available in French only.)

Last Call: Do you have any private corporation shares in your RRSP? Plan Nord: Maximize your business opportunities Can the refusal to sign a non-competition clause constitute a just and sufficient cause for dismissal?