Employment Contracts – Are They Worth It?

With increasing payroll taxes and new human rights and employment standards regulations, it’s not easy being an employer these days. Making matters worse, whenever there is a dismissal, there is a risk that the former employee will sue. Recent court awards indicate that employers can be liable for substantial damages.

In one recent BC case, a jury ordered an employer to pay over $100,000 to a junior sales representative who was dismissed after 10 weeks of employment. Although the Court of Appeal reduced the award to $41,000, the case still illustrates the potential dangers for employers when dismissing employees.

The employee in this case was fired without any notice. She sued for damages for wrongful dismissal. She also claimed damages for mental distress resulting from being fired and from the way in which she was fired.

The employer was not able to prove that the employee had been fired for just cause. If an employer has just cause, an employee can be dismissed without notice. (Be aware that allegations of just cause are often disputed by employees and can be difficult to prove).

“allegations of just cause are often disputed by employees and can be difficult to prove”

Without just cause, an employer must give an employee reasonable notice of the termination date, or continue to pay the employee’s wages for a period of time equal to a reasonable notice period. This is referred to as “pay in lieu of notice”. Employees may sue for wrongful dismissal if an employer does not provide reasonable notice or pay in lieu of notice.

In this case the jury found the employer to be guilty of negligent (but not deliberate) infliction of mental distress because of the way the employee was fired. It awarded damages for mental distress of $10,000 and punitive damages of $62,000, as well as damages for wrongful dismissal of $31,000 (about 8 months salary and bonus).

Damages for Wrongful Dismissal
The Court of Appeal upheld the award of damages for wrongful dismissal, although acknowledging that 8 months was at the high end of the scale. The employer argued that one month’s notice would have been sufficient given the employee’s young age, the junior level of her position, and the short period of her employment, factors which traditionally favour a shorter notice period.

However, the court ruled that other factors supported the longer notice period, including the poor job market in that industry at the time of the dismissal, the length of time it took the employee to find a new job, and the fact that the employer had assured the employee of long term employment.

Damages for Mental Distress
The Court of Appeal confirmed that damages for mental distress cannot be awarded unless the employer’s conduct constitutes a cause of action separate from the dismissal itself. An employer does not owe a duty to dismiss an employee in such a way as to reduce any risk of mental suffering. The court reversed the jury’s award for punitive damages.

However, applying a 1997 decision of the Supreme Court of Canada, the Court of Appeal held that an employee can be compensated by way of an extended notice period if the employer acts unfairly or in bad faith in the way it dismisses the employee. While the court overturned the jury’s award for mental distress of $10,000, it increased the award for failure to give reasonable notice by the same amount (by extending the notice period from 8 months to 11 months). This resulted in a total award of over $40,000.

Employment Contracts
As a result of cases like this one, employers are increasingly using employment contracts to attempt to limit the amount that must be paid to employees that are terminated.

When there is no written agreement, an employer dismissing an employee without cause must give at least the amount of notice required under the Employment Standards Act. The employer is also subject to the common law requirement to give reasonable notice, which generally exceeds the minimum standards imposed by the Employment Standards Act. The reasonable notice required at common law is based on various factors, including those discussed in the above case.

“employment contracts can limit the amount of notice required”

Written employment contracts can limit the amount of notice required. For these provisions to be enforceable, the contractual notice period must be at least equal to the minimum notice required under the Employment Standards Act.

The notice provisions must also be clear and there must be mutual agreement that the contractual notice will be binding. Employers cannot rely on notice provisions unilaterally imposed during the course of employment. The result is that any employer who wishes to contractually limit notice on termination must do so with caution.

While a written agreement provides employers with more protection and certainty, the courts will not always enforce these contracts. This is because the law considers employment to be a unique relationship that is subject to special protection. In addition, many terms of the employment contract are implied by common law. Provincial laws, such as the Human Rights Code and Employment Standards Act, impose other terms.

Employers who decide to prepare written employment agreements should review them and get legal advice. This will increase the chances that the agreements are enforceable, and will reduce the employer’s legal and severance costs in the long run. For more information on this or any other employment-related issue, please contact us.

Legal Non-Conformity

Under the Municipal Act (since renamed the Local Government Act), municipalities may pass zoning bylaws to regulate the use and density of land and the use and location of buildings. Often the existing use of land or buildings will not conform to the requirements of these new zoning bylaws. Section 911 of the Municipal Act (formerly section 970) allows the existing use of land or a building to continue despite a new bylaw as a legal non-conforming use, on certain conditions.

The existing use may continue unless the use is discontinued for a period of six months, and the discontinuance is not the result of normal seasonal or agricultural practices. As well, if a non-conforming building is damaged or destroyed to the extent of 75% or more of its value above its foundations, it cannot be repaired or replaced unless it conforms to the bylaw.

If the use and density of an existing building conforms to a new bylaw but the building’s siting, size or dimensions do not, section 911 allows the building to be repaired, extended or altered as long as it does not result in a worse contravention of the bylaw.

The BC Court of Appeal recently considered the interpretation of section 911. The case dealt with a family that co-owned a parcel of recreational property with several other individuals in a communal ownership arrangement. Each owner was entitled to the exclusive use of one of 17 segments of the property, and each segment had a cabin on it. In 1977 the local regional district passed a zoning bylaw allowing only three cabins on the property. The use of the 17 existing cabins was allowed to continue as a legal non-conforming use.

In 1991 the family’s cabin was partially destroyed by fire, to the extent of approximately 50%. Perhaps unaware of the provisions of the Municipal Act, the family allowed the local fire department to burn the cabin to the ground as a training exercise. When the family applied to rebuild the cabin, the regional district refused to grant a building permit. The family rebuilt the cabin anyhow, and despite a stop work order issued by the regional district.

The regional district applied to the court for an order to have the cabin removed, on the basis that it was not allowed under section 911 because the original cabin was destroyed beyond 75% of its value. The trial judge ruled that, when determining if a building has been destroyed beyond 75% of its value, section 911 should be interpreted to apply to the buildings on a parcel of land as a whole, and not to the single building at issue. Because the fire did not affect the other cabins on the land, section 911 did not prohibit the replacement of the family’s cabin.

The Court of Appeal disagreed. It held that section 911 must be interpreted to apply to each separate building on a parcel of land (unless the building is one of several other buildings that together form a single enterprise, such as a farm or a camp). It stated that the purpose of section 911 is to ensure that non-conforming uses are not continued indefinitely, and that property eventually comes into conformity with municipal zoning bylaws. As a result, the court ruled that the cabin was not permitted as a legally non-conforming use under section 911.

However, the court refused to order removal of the cabin. The court held that it would be “highly inequitable” to order removal, given that the cabin was almost identical to its predecessor, and that it was not disruptive to adjacent property owners or to the environment. The court acknowledged that this was “one of those rare cases” where it was appropriate for the court to refuse to enforce a statute.

The ruling didn’t leave the family totally off the hook. They were ordered to bring the cabin into compliance with new floodplain requirements

Bank Liable for Using Unwitnessed Power of Attorney

A recent decision of the B.C. Supreme Court required a bank to pay more than $120,000 after a bank employee allowed a customer to use an improperly witnessed power of attorney to strip the bank account of an elderly woman with dementia. The case means banks have a duty to make inquiries when faced with an unusual transaction. It also highlights the importance of appointing a trustworthy attorney.

What is a Power of Attorney?

A power of attorney is a written document which allows an individual (the “donor”) to appoint someone else (an “attorney”, which does not mean lawyer in this case) to act on behalf of the donor. The power is restricted to dealing with property and financial affairs, such as buying, selling or mortgaging real estate and other assets. The power can be further restricted in the document to only certain assets or to a limited duration. In B.C., an attorney does not have the power to make non-financial decisions, such as health care decisions, on behalf of the donor. Powers of attorney can be used to complete a transaction when the donor is going to be out of town or unavailable for signing due to accident or illness.

Enduring Powers of Attorney

We recommend to our clients that they consider an enduring power of attorney. It is estimated that a significant number of Canadians over the age of 65 suffer or will suffer from some sort of dementia. An enduring power of attorney provides an effective and economical way for an individual to prepare for this possibility.

A regular power of attorney becomes void upon the donor becoming incapable. An enduring power of attorney contains a statement that the attorney may continue to act on behalf of the donor should the donor become mentally incapable. The only other way that important financial transactions can legally occur after a person becomes mentally incompetent is through an expensive and time-consuming process involving the courts, the Public Trustee, and usually a bonding company.

An enduring power of attorney can provide peace of mind, knowing that someone you have chosen can handle your affairs. Most married persons appoint their spouse as their primary attorney, and may appoint one or two of their children as well. Given the nature of the powers given to the attorney, the choice of attorney is very important and not without risk (as illustrated in the court case referred to earlier).

The Court Decision

In the case mentioned above, the donor was an elderly woman living in California who had granted power of attorney to her nephew who lived in B.C. The donor left the power of attorney with a bank in Richmond where she kept a sizeable account. The bank lost the power of attorney and prepared a replacement for the donor to sign, which it gave to the nephew to have signed by the donor and notarized.

The nephew returned to the bank several weeks later with the power of attorney signed but not witnessed or notarized. A bank employee checked that the donor’s signature matched her bank signature and then witnessed the power of attorney herself. A month later, the nephew used the power of attorney to transfer the donor’s entire savings of over $120,000 to his own account, which he then used for his own purposes.

The judge ruled that since the bank was relying on the replacement document, not the original, to authorize the nephew’s transfer of funds, the bank was obligated to make sure that the replacement was properly executed. In between the time of signing the original power of attorney and the replacement power of attorney, the donor had become mentally incompetent and was declared by a California court to be incapable of managing her affairs. As a result, she did not have the legal or mental capacity required to grant the replacement power of attorney.

The bank had a duty to safeguard the donor’s funds and pay them out only when properly authorized to do so. The bank could not rely on the new power of attorney because it did not make normal inquiries to ensure that the donor understood the nature of the document.

New Probate Fee Act Becomes Law

The B.C. government has passed the Probate Fee Act in response to last year’s Supreme Court of Canada decision that Ontario’s probate fees were unconstitutional. The court declared that Ontario’s probate fees were actually a tax. A tax can only be imposed by an act of the legislature, not by cabinet regulation.

The Probate Fee Act retroactively confirms all past probate fees charged since the fees were introduced in 1988, and continues the present probate tax of 0.6% of that portion of an estate valued between $25,000 and $50,000 and 1.4% of that portion of an estate valued over $50,000.

With proper planning, many estates can be processed without a probate application, and with many others the fees can be reduced. Joint tenancy, gifts, trusts and beneficiary designations (on life insurance, RRSPs, RRIFs and pensions) are some of the strategies that can be used. However, unintended or undesirable consequences can outweigh the savings, and any strategy should be considered only in the context of an overall estate plan.

For more information on this or any other estate planning issue, please contact us at your convenience.

Homeowner Protection Act – Rules for Builders

In response to the leaky condo crisis, the B.C. government passed a new law called the Homeowner Protection Act. The Homeowner Protection Act creates the Homeowner Protection Office, and requires compulsory licensing for builders and mandatory warranty coverage on new homes. (In addition, recent regulations under the Act introduced licensing and warranty requirements for building envelope repairs – click here for more information.)

Builder Licensing

All residential builders (including developers and general contractors) must be licensed by the Homeowner Protection Office. Licenses are for one year only and must be renewed annually. The Homeowner Protection Office has the authority to monitor builders and cancel their licenses.

New Home Warranties

To obtain a building permit, builders must provide proof of third-party warranty coverage for the home. The warranty provider must be licensed with the government. Warranties must provide the following minimum coverage:

  • 2 years for materials and labour
  • 5 years for building envelope (including water penetration)
  • 10 years for structural defects

Owner-Built Homes

The Act sets out special rules for owner-built homes. An owner-builder is a person who builds a single, detached home for their own personal use, not more than once in any 18 month period. An owner-builder does not have to be licensed or provide a third-party warranty on their home. Instead, they must file an Owner-Builder Declaration and Disclosure Notice with their building permit application. If an owner-builder sells a home within 10 years of completion, they must give the buyer a copy of the Owner Builder Declaration and Disclosure Notice. The Disclosure Notice alerts buyers to the fact that the home is not protected by a third-party warranty.

If you have any questions about the requirements under the Homeowner Protection Act, please contact us, or visit the Homeowner Protection Office.

Income Splitting – New Rules

In the last federal budget, the government announced plans for a special tax to discourage income splitting with minor children.

Presently, dividends paid on shares owned by minor children are taxed at the child’s marginal tax rate. The new rules introduced in the budget will impose tax at the top marginal rate on certain types of income received by children age 17 and under. The type of income subject to the tax will include:

· dividends on unlisted shares (whether received directly or through a family trust or partnership); and

· income from a partnership or trust arising from the trust or partnership providing goods or services to a business carried on by a relative of the child.

The tax will apply for the 2000 and later taxation years, with no exceptions for existing structures. It will not affect income splitting plans involving spouses or children age 18 and over.


What are Probate Fees?

Probate fees are payable to obtain a Grant of Letters Probate (or, if there is not a Will, Letters of Administration). Letters Probate means the court has confirmed the validity of a Will and the authority of the executor of the Will. An executor’s authority, however, comes from the Will and not the Letters Probate. There is, therefore, no requirement that every Will be submitted to probate. In fact, with proper planning, many estates can be processed without a probate application, saving thousands of dollars in probate fees. Some of the strategies to achieve this are discussed below.


Probate usually becomes necessary because third parties, such as financial institutions,ICBCor the Land Title Office, want assurance that the executor has the authority to deal with a particular asset. If probate is required, the entire value of estate assets located within B.C. is subject to probate fees. This is true even if probate is required because of only one asset, such as a car or term deposit.

The fee is 1.4% of that portion of an estate in excess of $50,000 of value, and 0.6% for that portion of an estate valued between $25,000 and $50,000. For example, the probate and filing fees for an estate worth $250,000 are just over $3,000.

Strategies to Reduce or Avoid Probate Fees

The following strategies can be used to reduce or avoid probate fees:

Gifts Prior to Death

You can reduce the value of your estate by giving assets away prior to death. Certain legal requirements must be met for the gift to be valid. For example, you must actually give up control of the gift. You should also remember that if the fair market value of the gift exceeds its cost, the accrued gain may be subject to tax. Gifts of real estate may also require payment of property transfer tax.

Joint Tenancy

Property can be owned jointly in two ways: joint tenancy or tenancy in common. On the death of one joint owner, property held in joint tenancy normally passes by right of survivorship to the surviving joint owner(s). It is normally not considered part of the estate of the deceased joint owner, can be transferred without probate and is not subject to probate fees.

However, joint tenancy, especially when not between spouses, may have disadvantages, including the following:

  • loss of control – co-operation of the other joint owner will be required to sell or mortgage the property;
  • future litigation – if the surviving joint owner is not the only beneficiary of the estate of the deceased joint owner, the other beneficiaries may claim that the surviving joint owner holds the property in trust for all of the beneficiaries while the surviving joint owner may claim that the right of survivorship applies. This is most common where the deceased joint owner is a parent and the surviving joint owner is a child, and there are other children;
  • tax consequences – capital gains tax and property transfer tax may become payable when property is transferred into joint tenancy. If the property is a principal residence and the new joint owner does not live there, that owner’s share of any future increase in value of the home will not be exempt from capital gains tax;
  • exposure to creditors – joint property may be subject to claims by creditors, or the spouse, of the other joint owner;
  • death of joint owner – the new joint owner may pass away before the original owner;
  • the new joint owner can sever the joint tenancy, and create a tenancy in common, without notifying the other owner.

As well, recent decisions of the Supreme Court of Canada have changed the law regarding the transfer of property by a parent into joint names with their child.

In these cases the law presumes that a child who contributed nothing toward the property holds his or her interest in trust for the contributing parent. An exception is the presumption of advancement (meaning that the transfer will be presumed to be a gift). However, the presumption of advancement only applies to transfers of property from one spouse to both spouses, or from a parent to a minor child.  The 2007 decisions of the  Supreme Court of Canada in  Pecore v. Pecore and Madsen Estate v. Saylor have stated that the presumption of advancement does not apply to transfers between parents and adult children.  An adult child who holds assets jointly with a parent can no longer rely on the presumption that the parent wanted the child to take the asset at death. Additional evidence is required to prove that a transfer into joint tenancy was intended to be a gift and that the survivor was intended to receive the asset on the death of the deceased.

For more detailed information about the pros and cons of joint tenancy, click here.

Corporate Debt

Probate fees are based on the gross value of estate assets (except for real estate for which the amount of outstanding mortgages may be deducted). Outstanding debts, other than mortgage debts, are not deducted to determine the value your estate. If you purchase an asset with borrowed money that is not secured by a mortgage, transferring the asset and the debt to a limited company will reduce the gross value of your estate. The asset and the debt are no longer owned by you, but by your company. While the company’s shares will be part of your estate and subject to probate fees, the share value would be the value of the asset less the debt to acquire the asset.

Named Beneficiaries

Designating a beneficiary under insurance policies, RRSPs, RRIFs, TSFAs and pensions will allow the proceeds to be paid directly to the named beneficiary. The proceeds will not form part of your estate and are not subject to probate fees. Probate fees are only payable if the proceeds are payable to the estate, or if the named beneficiary dies before you. In some cases you may want to designate an alternate beneficiary to avoid the proceeds being paid to your estate.

Property Transferred to a Trust

A trust can be created to hold property on your behalf, with provisions providing for the distribution of the property after your death. Because the property is owned by the trust, it is not considered part of your estate, and is not subject to probate fees. Trusts are generally taxed at high rates and the cost of creating and administering the trust may be prohibitive. However, two new types of trusts, called alter ego and joint spousal trusts, are now available thanks to recent changes to Canada’s Income Tax Act. For more information, click here for our article on these new trusts.

These strategies will result in probate fees being reduced or avoided. However, caution must be exercised to ensure that unintended or undesirable consequences do not outweigh the savings in probate fees. As well, any strategy should only be considered in the context of an overall estate plan.

For more information on this or any other estate planning issue, please contact us at your convenience.


FAQs About B.C.’s Builders Lien Act

B.C.’s Builders Lien Act came into force on February 1, 1998. It updated and in some cases significantly changed the law under the former Builders Lien Act.

In this article we answer questions about the Act from the perspective of a landlord, an owner building a house, a purchaser, a contractor and a lender:

Q. I am a landlord of a commercial building. How can I protect myself from lien claims for work done for my tenants?

A. The Act permits you to file a Notice of Interest against your property at the Land Title Office. The notice warns that the your interest in the land  is not bound by a builders lien unless the work was done at your express request. Any trades who supply work or materials to your property for your tenants will not be able to claim a lien against your interest in the property, unless you authorized the work.

Q. I am having a house built for me. What is a builders lien holdback and is it necessary?

A. The Act requires you to hold back 10% of each payment to the contractor (the builders lien holdback) in a special account so that there is money available for payment of liens. Without a holdback, you could be responsible for the full amount of all lien claims even if the contract price was already paid in full.

Q. What do I do with the holdback?

A. As the owner, you are required to pay the holdback into an account at a savings institution. If you don’t, the contractor can stop working and sue you for damages arising from the work stoppage. If you don’t have a general contractor, a separate holdback account is required for every contract. Withdrawals from the holdback account will require the contractor’s signature as well as your own.

Q. Is a special holdback account always necessary?

A. Yes, with two exceptions. The first is where the value of work and material supplied is less than $100,000 (e.g. renovations). The second is where you have authorized the construction lender to disburse the mortgage money on your behalf, in which case the lender holds back 10% from each draw. However, this results in an area of liability for lenders that most will not be willing to enter.

Q. I am purchasing a new home. Should I be worried about builder’s liens?

A. Yes. If you purchase the home within 45 days of its completion, there could be lien claims filed after you become the owner. You could be in the position of having to pay the liens, even though you already paid the purchase price in full. The Act deals with this problem by permitting purchasers to hold back 10% of the purchase price from the seller until the time for filing liens expired, but these provisions have not been proclaimed. As a result, you must ensure that your contract permits you to hold back funds if the time for filing liens has not expired by closing.

Q. I am a framing contractor. Do I still have until 31 days after substantial completion of the building to file a builders lien?

A. No. You now have until 45 days after a payment certifier issues a certificate of completion for your contract. The payment certifier is usually the architect or engineer, but may be the owner or the owner and general contractor together if your contract does not identify the payment certifier. However, regardless of when or whether a certificate of completion is issued, you may not file a lien after 45 days from the date of substantial completion, abandonment or termination of the general contractor’s contract (or, if there is no general contractor, of the project).

Q. Do I still need to wait until 41 days after substantial completion of the entire building to receive my share of the builders lien holdback?

A. No. Under the multiple holdback system, the general contractor maintains a separate holdback for each subcontract, which will be released 55 days after the payment certifier issues a certificate of completion for that subcontract.

Q. I work for a bank. The bank is ready to advance a draw on a construction mortgage, but there are liens filed against the property. The draw is needed to complete the building. How can the bank’s advance have priority over the liens?

A. The general rule is that advances made by a lender after a lien is filed do not have priority over the lien. However, it may be possible for the bank to apply the advance to the payment of the liens. The Act also allows the bank to apply for a court order that the mortgage advance will have priority over the filed liens. The court will make the order if it is satisfied that the advance will be applied to complete the construction and will result in increased value to the property at least equal to the amount of the advance.

For more specific information on how the Builders Lien Act affects you, contact us at your convenience.


Buyer Must Pay GST on Real Estate

A buyer must pay the GST on any taxable purchase, even if the parties did not think that any GST was payable, according to a recent decision of the B.C. Supreme Court.

Under the GST legislation, when GST is payable, the buyer is generally responsible to pay it, while the seller is responsible to collect it from the buyer and remit it to the Crown. The property in this case was a used residential and commercial building. The residential portion of the building was exempt from GST. The commercial portion was taxable, but the seller assumed that the buyer was registered for GST, relieving her of her duty to collect and remit the tax. As a GST registrant, the buyer would have been responsible to remit the tax himself, but would have been able to offset the GST payable against the GST collected on the commercial rents of the tenants.

Unfortunately for everyone, the buyer did not register for GST. When Revenue Canada discovered that the sale went through, it assessed GST, penalties and interest of over $20,000. Although the tax was payable by the buyer, Revenue Canada demanded payment only from the seller, because she should have collected it from the buyer.

The seller eventually paid the tax and then sued the buyer to recover the amount paid. However, the Excise Tax Act (the GST legislation), only allows a seller to recover GST from a buyer if the seller has notified the buyer by an invoice, receipt or in the sale agreement that GST is either included in the purchase price or in addition to it. The sale agreement did not specify whether GST was included in or in addition to the purchase price.

The seller therefore tried to meet the requirements of the Excise Tax Act by providing an invoice to the buyer (2 ½ years after the sale completed!) stating that GST was in addition to the purchase price. The judge, however, concluded that the seller met the requirements of the Act because of a clause on the reverse side of the Real Estate Board’s standard form Contract of Purchase and Sale. The clause requires that each party must comply with the Excise Tax Act. Under the Excise Tax Act, if GST is payable, the buyer is required to pay it.

Accordingly, the clause on the reverse side of the contract, by requiring the parties to comply with the Act, meant that the buyer would be required to pay any GST. The judge concluded that this clause was sufficient notice to the buyer that GST was in addition to the purchase price, and the seller was able to recover the GST she paid from the buyer. This case illustrates the pitfalls that can arise for buyers and sellers of real estate, and the importance of receiving legal advice.