Key Employee Issues for an E-Commerce Business

Transcription

1 Key Employee Issues for an E-Commerce Business Mary J. Gleason Counsel Diana Cianciusi Corporate Counsel COGNOS INCORPORATED

2 Constitutional Law Considerations Jurisdiction over labour and employment matters in an undertaking depends on jurisdiction over the undertaking, itself Most undertakings are subject to provincial regulation in matters of labour and employment law Some are subject to federal regulation if they are engaged in an activity over which Parliament has jurisdiction under the Constitution Act, 1867

3 Constitutional Law (cont d) Two possibilities for generating jurisdiction in Parliament in an e-commerce business: 92(10)(a) of the Constitution Act, 1867 Peace Order and Good Government clause

4 Relevance of Determination of Constitutional Law Question Different legislative provisions in force in federal and provincial spheres Key differences between Canada Labour Code and Ontario Employment Standards Act under federal Code possibility of reinstatement via arbitration for certain wrongfully dismissed non-unionized employees (Part III, Division XIV of Code) severance pay and pay in lieu of notice provisions in cases of individual terminations more generous under Ontario Employment Standards Act group notice provisions more onerous for employer under Canada Labour Code

5 Relevance of Constitutional Law Question (cont d) Key differences between Canada Labour Code and Ontario Employment Standards Act (cont d) union certification process significantly different (and arguably more onerous for trade unions) under Ontario Labour Relations Act Ontario Labour Relations Act arguably makes decertification easier Other key legislative differences differing provisions governing pay and employment equity federally-regulated employers are subject to the Personal Information Protection and Electronic Documents Act with respect to the personal information of employees and job applicants

6 What law is applicable to an E- Commerce Business? Not yet finally decided Depends on nature of business Likely outcome federal if business is in the nature of providing internet services or connections (including webcasting) provincial if business merely uses the internet to sell its products

7 Protecting Intellectual Property through Restrictive Covenants Motivating Factors Will employee have access to or use confidential information or trade secrets? If employee leaves to go elsewhere, could the employee hurt the employer competitively? Does the employer want to protect itself from raiding?

8 When do Non-Compete Obligations Arise? By Common Law confidential information fiduciary duties By contract Employment contracts Non-disclosure agreements Assignment of Inventions

9 Who Has a Fiduciary Obligation? Key individuals person at senior level able to influence direction of the company knowledge of names and needs of customers access to confidential information knowledge and authority of competitive pricing structure

10 Contractual Protection Confidential Information employer owns all discoveries made in course of employment (or other relationship) Discoveries = all inventions discoveries, improvements or works protectable by patent, trade secret or copyright trade secret is information that has independent economic value, actual or potential, from not being generally known to, and not readily ascertainable by proper means by other persons who can obtain value from its disclosure, and which is subject to efforts to maintain secrecy that are reasonable under the circumstances

11 Contractual Protection (cont d) Work Product Tangible Embodiments Assignment and Waiver of Moral Right Works Made for Hire (US) Under U.S. Copyright Act employee assigns to employer all copyright and ownership rights regarding discoveries, ideas and concepts during period of employment after end of employment if based on confidential information of employer

12 Non-Competition Elements Temporal / Spatial restriction Activity restrained from Competitor(s) precluded from

13 Issues on Enforceability Protectable Interest trade secret confidential information goodwill and customer information Totality of circumstances equality of bargaining power relative benefits derived by each party from the arrangement Consideration Public Policy

14 Consideration Something over and above what employer is otherwise obligated to give Continued employment generally not sufficient

15 Public Policy Considerations Competition Individual Liberty Freedom to transfer skills & knowledge Employee s right to earn a living Employer s proprietary rights Freedom of contract Protection of business

16 Public Policy Considerations (cont d) Investment in training & development of employees Discourage monopolies

17 Enhancing Enforceability Reasonableness of Covenant geographic, temporal and scope Serious and irreparable harm Consideration Severability of clauses Independent Legal Advice

18 Reasonableness Standard appropriate to the industry Whether a [non-competition] restriction is reasonably required for the protection of the covenantee can only be decided by considering the nature of the covenantee s business and the nature and character of the employment. Elsley v. J.G. Collins Insurance Agencies Ltd. (S.C.C.) applied in Lyons v. Multari (Ont. C.A.) Traditional approach incompatible with e-speed globalization of businesses short R&D cycles time to market

19 Non-Solicitation Restricted Period Targets Prohibition against raiding Employer not a party to the contractual relationship inducing breach of contract/ interference with contractual relations

20 Elements for finding of Interference Knowledge of an existing contract Intention to cause loss Breach of an existing contract Wrongful procurement Actual damage consequent to breach Lack of justification

21 Doctrine of Inevitability Prevents employee from taking a position with a competitor if, by assuming that position, such employee will inevitably disclose or use confidential information or trade secrets Tool to prevent employees from going to work for competitors Employer benefits w/o need to negotiate

22 Factors in favour of Injunction Existence of misconduct by departing employee Ability of new employer to use information for its own benefit or detriment of former employer Degree of similarity between former and current position

23 Employer Protection Get written non-compete and confidentiality agreements Reasonable restrictions on time, geography and scope Adequate consideration for the restriction Clearly defined parameters Clearly identify confidential information Reinforce continuing obligation on exit interview Notice Letter to new employer Establish policy on hiring from business partners and clearly defined intake process

24 Issues on Hiring Need to review obligations to former employer of the candidate of the hiring party Employment Agreement (recruitment process)

25 Obligations to Former Employer May exist by virtue of common law or contract Obligations apply regardless of whether employee is recruited Enquire as to position held and nature of duties to determine if employee might owe fiduciary duties to former employer Try to get employee s former job description Must ask for and review all agreements between prospective employee and former employer before making a job offer

26 Obligations to Former Employer (cont d) Advise new hires of their obligations to their former employers with respect to confidential information Include contractual provision restricting new hires from bringing confidential information with them or using confidential information Encourage fiduciaries to work out acceptable notice period with former employer

27 Obligations to Former Employer (cont d) Do not place employee in position where she will inevitably use confidential information or trade secrets Have employee sign agreement confirming he will not breach obligations to former employer New employer may be liable for interference with contractual relations

28 Interview Process Do not make oral offers Set interview questions in advance (to ensure compliance with Human Rights legislation) Provide documentation early in the process employment agreement stock option agreement and plan human resources policies (make available for review) Provide a reasonable amount of time for prospective employee to have agreements reviewed and obtain independent legal advice Do not let employee start employment without signed documentation in place

29 Employment Agreement Issues to consider/cover in contract term of employment - fixed term or indefinite period Employment Standards Act - notice/severance if term exceeds one year non-renewal of fixed term contract not termination for purposes of Division XIV of Canada Labour Code or the common law probationary period need to clearly define right to terminate without notice as part of probationary period position/to whom employee reports to duties build in flexibility for change to avoid constructive dismissal claims

30 Employment Agreement (cont d) Rights on termination reciprocal notice by parties preserve right to terminate without notice for cause (subject to requirements of Employment Standards Act) clearly define payments to which employee will be entitled if terminated without notice (may exclude benefits and pension after applicable Employment Standards Act notice period) ensure compliance with applicable minimum standards legislation Salary and bonuses clarity is important if written bonus plan, refer to it (with flexibility to change over time)

31 Employment Agreement (cont d) Stock options do NOT grant option in letter of offer reference plan documentation in offer letter/employment agreement mention option grants are subject to Board approval and to entering into the standard option agreement in stock option plan, ensure compliance with requirements of relevant stock exchanges be careful to clearly define rights relating to vested and unvested options on termination

32 Employment Agreement (cont d) Benefits and pension arrangements preserve flexibility for amending benefits over time for employees and for retirees clarify that participation in the employer s insured benefit plans is subject to the carrier s determination of insurability clearly state that coverage will be stopped on termination (for whatever reason) or at the end of the statutory requirement (depending on applicable statutory requirements) consider making similar provision with respect to pension entitlements on termination (especially if pension is via way of RRSP contribution) carefully draft provisions related to bonus entitlements on termination

33 Employment Agreement (cont d) Clauses to Protect Confidential Information non-solicitation non-competition confidential information assignment and waiver of moral rights works made for hire (U.S.)

34 Employment Agreement (cont d) Other Policies make reference to human resources materials, rules, policies etc. that will bind employees (and provide access to copies to employees) make provision for flexibility so policies may be changed vacation - in either policy or contract clearly specify entitlements address unused vacation entitlements (ensure compliance with minimum statutory requirements)

35 Employment Agreement (cont d) Miscellaneous entire agreement clause clarify no pre - contractual representations on which the employee is relying choice of law/jurisdiction clause consider enforcement via arbitration as opposed to the courts confirm no contractual restrictions (under employment contract with former employer) to prospective employee s accepting the position

36 Issues During the Currency of Employment Review and update agreements when transferring/promoting employee or significantly changing duties outdated agreements may be unenforceable (especially as concerns termination provisions) ensure consideration for changes to agreement (i.e. raise, promotion, grant of options) or ensure adequate notice of unilateral changes to the agreement

37 Issues on Termination Compliance with employment agreement is critical If no agreement, compliance with common law requirements is crucial Ensure a fair termination process to avoid aggravated damages have a face to face termination interview provide (real) reasons for termination allow employee a chance to respond (if desired) hold the interview as soon as possible after the decision to terminate is made do not allege cause - especially in situations of suspected dishonest behaviour - without solid proof

38 Issues on Termination (cont d) promptly pay amounts owing under minimum standards legislation co-operate in transferring monies to an RRSP deliver Record of Employment promptly (within required 5 days) try not to terminate employees during periods of personal stress (i.e. illness, marriage breakdown) consider cost-neutral options that ease the situation for the employee (i.e. offering option to employee to take over balance of lease on company-used car)

39 Termination Documentation Always provide a termination letter, with a clearly specified termination date Provision of actual notice is often a realistic (and economic) possibility Clarify expectations over working notice period Ensure compliance with benefit continuation provisions of applicable minimum standards legislation

40 Termination Documentation (Cont d) Consider obtaining a release if there is not a written contract, outlining rights on termination Afford employees sufficient time to seek legal advice about termination packages

41 Possibility of Issue Estoppel Employment Insurance Act requires completion of Record of Employment and prohibits provision by employers of false or misleading information In most instances, no statutory obligation to provide further information, beyond the Record of Employment Participation in hearing before Board of Referees may bar employer from plea of just cause in civil action by reason of the doctrine of issue estoppel Requirements for issue estoppel same question decided previous decision is a final judicial or quasi-judicial decision parties to the previous decision were the same

42 References Failure to provide may give rise to aggravated damages Employer protected by defence of qualified privilege unless actuated by malice Duty to provide truthful references