An agent’s actual authority to act for the principal will normally terminate when the job is finished, when the agent receives different instructions from the principal, or when the employment or agency relationship is changed or terminated. The authority to act will also end when the project involved becomes illegal or the principal dies, goes bankrupt, or becomes insane. Although an agent’s actual authority may be terminated in this way, there is still the problem of apparent authority. This is one reason the principal should avoid the creation of such apparent authority in the first place. Where that is not possible, the employer must take steps to notify all customers and suppliers who would normally deal with the agent that the relationship has been terminated.
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Most jurisdictions now permit a power of attorney to be created that will continue after the principal becomes mentally incapacitated, thus allowing a trusted friend or rela-tive to manage the incapacitated principal’s affairs. This usually must be done under the supervision of a public trustee or some other government official. These enduring powers of attorney (EPAs) are sometimes abused and all jurisdictions are taking steps to ensure that such abuse is limited as much as possible.
Note that in addition to these general comments about agency, there may be specific statutes imposing additional rules and responsibilities on the agency relationship. For example, real estate agents, travel agents, stock brokers, insurance agents and mortgage brokers have special statutes that govern their industry imposing additional responsibili-ties and disciplinary processes on them.
emPLOymenT
Employment is based on a special relationship that is historically recognized under the common law as one of master and servant. That term catches the essence of this special relationship, which involves unique obligations of commitment, duty, and loyalty. Today, the employment relationship is based on contract, and normal contract law applies—
especially to the employment’s creation, the duties to be performed, the consideration, and the terms of termination.
Three main areas are of concern regarding employment. First, the common law of master/servant applies in those areas that are not covered by collective bargaining and where no unions are involved. It deals primarily with the law of termination and wrongful dismissal. Second, we will look at those special relationships where collective bargaining determines the workplace environment, and where unions and management must comply with the law set out in specialized statutes. Third, there has also been a considerable amount of legislation passed that deals with employee rights and benefits, and this will be the final topic of discussion in this section. Federal legislation applies where employees of the federal government are involved and in industries that are federally regulated. Other-wise, appropriate provincial legislation will govern the employment relationship.
The first question to be determined is whether an employment relationship exists.
Today there are many statutes in place that provide a definition of employment, such as the Employment Standards Act, the Workers’ Compensation Act, and the Employment Insurance Act. These are important, but the definition given is restricted to the operation of the particular statute within which it is found. No general statutory definition of employment is provided. One reason it is important to determine whether an employ-ment relationship exists outside of these statutes is usually to determine the extent of the employer’s liability for wrongful acts committed by their employees. As discussed above, such vicarious liability is usually restricted to the employment relationship, with the employer being responsible for wrongful acts of employees when the act committed is closely connected to the employment. The injured victim can seek redress from both the employee who caused the injury and the employer who profited from the work being performed. Since the employer is usually in a much better position to pay such compen-sation, it is vital, from the point of view of the victim, that an employment relationship is established. Employment also must be established for an employee to have access to those rights associated with master/servant law, including reasonable notice or pay in lieu of notice when terminated.
LO 4/LO 5
Contract law applies to employment
Specialized statutes have own definitions of employment
Vicarious liability based primarily on employment
Employer liable for torts of employee within scope of employment
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Historically, the test used to determine employment was based on the degree of con-trol exercised. Independent contractors work for themselves, doing the job agreed to in the contract. They control their own hours and how they do the work. Employees, on the other hand, work for and under the direction of the employer and can be told not only what to do, but how to do it. If a painter was hired as an employee to paint an apartment building, he would be expected to come to work at a specified time, take limited breaks during the day, and leave for the night when instructed. He could also be told which rooms to do first and even the length of brush stokes to use in the process, whereas a painter hired as an independent contractor would have agreed to do the job and to meet certain specifications such as colour, number of coats, and quality of paint. But since the painter would be working for himself, he would determine the hours of work and process used. So long as the painter finishes according to the contract specifications, and does an adequate job, the owner of the property would have no complaint. Thus, the employee is subject to rules and control whereas the contractor is independent of those controls (see Figure 6.3).
Sometimes this control test is not adequate for determining employment, and so a supplemental test has been developed based on an employee’s relationship to the business.
This is called the organization test. If the individual is found to be an integral and essen-tial part of the business organization, he or she is an employee for purposes of vicarious liability and termination requirements, even though the actual control exercised over him or her is limited. Such an employee may exhibit many of the characteristics of an inde-pendent contractor, such as being paid as an indeinde-pendent, being declared as indeinde-pendent in the employment contract, and even operating his or her own operating company. But the court will still look at the relationship and may find such a worker is an employee, especially where the worker works exclusively for the employer and has little control over what they do and how they do it.
A salesperson may look like an independent contractor selling by commission only, supplying his or her own car, and determining his or her own hours. But if he or she can only sell for that one business, must report to it for sales meetings, has an office or desk located at the business, and is part of the main sales force, then he or she can be said to be an integral part of that organization and will be treated as an employee of the business.
The employer will be held vicariously liable for wrongful acts committed in the process of this employment. However, remember that the employer will only be responsible for con-duct that takes place that is closely related to the employment, and not when the employee is “on a frolic of her own.”
The employer will also have significantly greater obligations to an employee, as opposed to an independent contractor, if that salesperson’s employment is terminated.
Even when the court determines that the relationship is truly a contractual one, it may
Employment exists when employee can be told what to do and how to do it
Employment exists when employee is an essential element of employer’s organization
Contracts with independent contractor to do specific jobs Hires employees to
perform services
Employer/Contractor
Employee Independent contractor
Figure 6.3 employee Versus contractor
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find that the worker is a dependent contractor rather than an independent one, again usually based on the long-term and exclusive relationship with the employer. The con-sequences of such a finding would be that the dependent contractor would be treated more like an employee for vicarious liability purposes and for termination rights, although the notice period requirement could be somewhat less. See discussion in Case Summary 6.5 below.
Employment Duties In general, an employer has an obligation to provide a safe workplace, appropriate direction, tools where necessary, wages, and reimbursement for expenses, as well as any other specific obligations set out in the employment contract.
The employee must be reasonably competent, have the skills claimed, and must also be honest, punctual, loyal, and perform the work agreed to. Where the employee is a man-ager or key to the business, there may be a fiduciary duty owed to the employer, but gener-ally, at least in common law provinces, there is no fiduciary duty owed by an ordinary employee. Still, there may be a duty of confidentiality imposed because of the particular nature of the job performed, or because of a confidentiality agreement included in the contract of employment. This duty of confidentiality imposed on employees is discussed in detail in Chapter 9.
It is extremely important to include such provisions at the outset in an employment contract. Failure to do so can cause serious problems later, especially when dealing with long-term employees. Such a contract can include not only terms of pay and statement of duties but can also include provisions with respect to confidentiality, what happens when duties change, provisions for retirement, and notice requirements upon termination.
Where restrictive covenants such as non-competition and non-solicitation clauses are included, they must be very carefully worded so as to go no further than necessary to pro-tect the employer’s business. Any ambiguity will generally be interpreted in favour of the employee and be void. See Case Summary 6.8 below.
Only managers or key employees have fiduciary duty
Employment contract can be used to avoid future problems
RBC Dominion Securities (Plaintiff/Appellant), Merrill Lynch and the former employees of RBC Dominion Securities (Defendants/Respondents). The case was brought in the Supreme Court of British Columbia, appealed to the Court of Appeal, and again to the Supreme Court of Canada.
Don Delamont was the manager of the Cranbrook office of RBC Dominion Securities. The Merrill Lynch man-ager in the area persuaded him to leave and come to work for them. When he left, he orchestrated the move of almost all of the staff working in that office to come with him. They also took information allowing them to bring their various clients with them. The issue here is whether there is a general duty of good faith implied into their
employment contracts that prohibits them from compet-ing after they leave in such a way. The court determined that there was no such general duty of good faith and that the individual employees were free to compete as soon as they left. Note that they did have an obligation not to take confidential papers and other property of their employer and that they were required to give reasonable notice of their departure, which they failed to do and damages were awarded accordingly. Note that the client lists taken were returned within a few days and were not an important factor here.
The main problem, however, was whether the award of $1 483 239 against the manager, Mr. Delamont,
case Summary 6.4 RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc.8