What to do when U.S. national security, Canadian employment laws clash

by Rachel Ravary

No one can deny that security concerns have taken on monumental proportions in the post-9/11 era. Buzzwords like national security, homeland security, border security, supply chain security, perimeter security, and security threats have become part of our daily vocabulary. National security is also high on the list of priorities of our respective lawmakers.

In the past several years, the U.S. State Department has become increasingly strict in its enforcement of export and transportation controls, most importantly the International Traffic in Arms Regulations (ITAR).

Unfortunately, these controls are often at odds with Canadian employment laws especially those dealing with privacy and human rights – leaving companies whose business depends in whole or in part on trade in ITAR-controlled materials between a rock and a hard place.
What are the issues? Could you be exposed? What is being done to resolve them? How can you limit your risks in the meantime? Those are some of the questions that this week’s blog will address.

Q. What are the ITAR?

A. The ITAR were adopted under the U.S. Arms Export Control Act, which essentially regulates the export of U.S. defense articles and services. Among other things, the ITAR impose strict licensing requirements before any non-U.S. person or company can come into contact with ITAR-controlled materials.

To be granted a license, the person or company must guarantee that no citizen of any one of the 25 “embargoed countries” will be permitted access to or contact with ITAR-controlled materials. This includes individuals who are Canadian citizens but who hold dual nationality with an embargoed country.

Companies who violate the ITAR by failing to restrict access to unauthorized individuals expose themselves to hefty fines, not to mention contractual liability and the resulting damage to their business.

Q. Who must comply with the ITAR?

A. Don’t be misled by the title – the ITAR have a far wider reach than military arms dealers. By definition, the restrictions apply to any company involved in the export or import of U.S. defense-related articles and services. This obviously includes such things as firearms and military equipment, but it also extends to less likely suspects such as protective personal equipment, training manuals and materials, fire control equipment, radiological devices, air and spacecraft, to name a few.

As well, the regulations cover any components, parts, accessories, and technical data used in those articles and any related services, for example, training, design, assembly, testing, repair, and maintenance. To date, the aerospace, transportation, and telecommunications industries seem most affected.

Q. Why should we be concerned by the ITAR?

A. The ITAR controls clash with Canadian human rights laws, which generally prevent an employer from discriminating against an employee on the basis of nationality or country of origin. As well, compliance with ITAR raises issues of infringement of privacy to the extent that employers will have to ask about their employees’ national origins, whether they still hold citizenship in those countries, etc.

Finally, complying with ITAR could put some employers in direct conflict with their employment equity or affirmative action obligations.

Q. Is it possible to comply with ITAR without violating Canadian employment laws?

A. The ITAR have a lot of Canadian critics, and most of them seem to be saying, “No.” More revealing is the position of Canada’s Department of National Defence (DND), which has clearly said that compliance with ITAR restrictions would be inconsistent with the Canadian Charter of Rights and Freedoms and human rights legislation.

Q. How have the Canadian authorities responded?

A. To date, human rights complaints have been filed in Quebec, Ontario, and Manitoba by employees or former employees who were either fired, reassigned, or denied professional opportunities because of the application of ITAR restrictions. Without exception, the provincial human rights commissions have taken the firm position that the ITAR restrictions are discriminatory and violate human rights laws.

Presumably, fear of the larger implications has led all of these cases to be settled before hearing. As such, we don’t have the benefit of any decision on the merits of the issue – in particular whether the application of the ITAR rules could be viewed as a bona fide occupational requirement.

Q. What is being done to resolve the problem?

A. Talks between the Canadian Minister of Foreign Affairs, DND, and the U.S. State Department began in 2006 and have recently resulted in an agreement to allow DND personnel who are Canadian citizens, including dual nationals, to access ITAR-controlled materials on a need-to-know basis, subject to a minimum secret-level security clearance. Discussions are continuing to try to reach a similar arrangement for private Canadian businesses.

Q. What can you do in the meantime?

A. There are no easy answers to this one. While we wait for a politically negotiated arrangement to address the difficulties raised by the ITAR, the best advice we can offer is:

• Clearly identify the parts of your activities that are subject to the ITAR and the affected employees as narrowly as possible.
• Ensure that your U.S. parent or U.S. business partners are aware of the challenges that the ITAR pose with respect to Canadian employees.
• To the extent possible, offer employees work on projects that are subject to the ITAR on a voluntary basis, specifying that ITAR compliance is a condition of the assignment.
• Specifying ITAR compliance as a job requirement at the recruitment stage may discourage some candidates who don’t meet the requirements from applying. However, because human rights and privacy laws generally prohibit you from asking an applicant about national origin, and discrimination protections typically apply to the hiring stage, this approach has its limits.
• Avoid at all costs firing, demoting, or otherwise compromising the professional advancement of an employee as a result of ITAR constraints.
• If problematic situations arise, deal with them on a case-by-case basis, and attempt to resolve them in a way that is satisfactory to the affected employee.

Releases you can rely on

by Joanna M. Carvalho and Donovan G. Plomp

Does your Canadian business ask employees to sign releases in exchange for their severance packages? Imagine if an employee took the severance package, signed the release, then sued your company anyway.

That’s exactly what Douglas L. Titus did to his former employer — and he won at the trial level. Thankfully for employers, the Ontario Court of Appeal overturned this decision.

Facts
Titus was a lawyer with 25 years of experience. He started working for William F. Cooke Enterprises Inc. on March 28, 2000. His employment was terminated 18 months later because of downsizing. At the termination meeting, the employer offered him a severance package of three months salary and some continued benefit coverage in exchange for a release of all claims:

Although Titus was given seven days to consider the severance package offer, he insisted on signing the release right away. The release meant that he released his employer and its related companies from all actions, causes of actions, suits, and complaints arising from his “hiring by, employment with and cessation of employment with the Employer.”

Above the space for the signature, the release concluded with the following words in highlighted capital letters:

I HAVE READ THIS DOCUMENT AND I UNDERSTAND THAT IT CONTAINS A FULL AND FINAL RELEASE OF ALL CLAIMS THAT I HAVE OR MAY HAVE AGAINST THE RELEASEES. I AM SIGNING THIS DOCUMENT VOLUNTARILY.

A few weeks after Titus’ termination, he started a new job, although for less pay.
Approximately six months later, Titus filed a wrongful dismissal suit against William F. Cooke and successfully asked the trial court to set aside the release. The employer appealed the decision to the Ontario Court of Appeal.

Appeal decision
The Court of Appeal found that the trial judge was mistaken in setting aside the release and said that a release should only be set aside if it is “unconscionable.” The court applied the following test for unconscionability:

1. a grossly unfair and improvident transaction;
2. a victim’s lack of independent legal advice or other suitable advice;
3. an overwhelming imbalance in bargaining power caused by the victim’s ignorance of business, illiteracy, ignorance of the language of the bargain, blindness, deafness, illness, senility, or similar disability; and
4. the other party’s knowingly taking advantage of this vulnerability.

Let’s take a look at those four factors:

Grossly unfair transaction. The Court of Appeal found that the employer’s offer of three months’ salary was not grossly unfair even though the trial judge had ultimately determined that the reasonable notice period was 10 months. The Court of Appeal relied on the following reasons:

• the employer had sought legal advice regarding the reasonableness of its offer;
• Titus’ previous stints working for William F. Cooke didn’t serve to increase the reasonable notice period because he had received separate severance payments each of those times;
• upon acceptance of the offer, the money was payable immediately;
• a dismissed employee normally must make efforts to avoid or “mitigate” lost pay and benefits by finding new employment, which Titus wasn’t required to do;
• by accepting the offer, Titus avoided the delay, costs, and uncertainty of litigation;
• although making a reference letter conditional upon acceptance of the offer could support a claim of “unconscionability,” Titus didn’t request a reference letter and obtained new employment quickly; and
• making the severance offer conditional on the release was not grossly unfair because the release contained standard terms and it was fair for the employer to propose such an exchange.

Absence of legal advice. As a senior lawyer with extensive experience in contract and employment law, Titus didn’t want or need legal advice.

Imbalance in bargaining power. The Court of Appeal acknowledged that an employer has more bargaining power than a dismissed employee. Titus claimed the imbalance was magnified because his finances were terrible and his father had just died. The court rejected those two arguments. William F. Cooke had given Titus time to deal with his father’s death. The court found Titus’ evidence regarding financial hardship to be unconvincing.

Exploitation of vulnerability. The court found that William F. Cooke had not taken advantage of Titus’s vulnerability because:

• the employer had sought legal advice before making its offer;
• the offer was not unreasonable;
• the termination was conducted in a private office;
• the termination was conducted in a polite and professional manner;
• the employer gave Titus the opportunity and urged him to take time to consider the offer;
• upon acceptance of the offer, Titus was paid immediately; and
• the employer quickly complied with Titus’s request for payment of the severance money directly into his tax deferred savings plan.

Lessons for employers
When you offer a severance package to an employee, it’s usually prudent to have the employee sign a release in exchange. To help ensure that the release will be enforceable, it will be helpful if you:

• give the employee a reasonable period of time to consider the offer and, if desired by the employee, to seek independent legal advice;
• advise the employee in writing that he or she has the right to seek independent legal advice;
• seek legal advice regarding the reasonableness of the severance package;
• conduct the termination in private;
• conduct the termination in a polite and professional manner;
• don’t make a reference letter conditional upon acceptance of the offer; and
• once an offer is accepted, process payment of severance funds promptly.

Effective and streamlined bargaining preparation

By Daniel M. Pugen

It’s been a cold, wintry start to 2008 (at least in Canada). The cobwebs from New Year’s Eve have passed and New Years’ resolutions already have been broken. As February began, the groundhog indicated six more weeks of winter and Ontario employees were counting down the days until Family Day (February 18, 2008), Ontario’s new statutory holiday.

People are back from vacation and work is in full swing. Phones are ringing, faxes are churning, e-mails are popping up on computer screens. In the midst of the hum of the office as you think of the priorities for the year ahead, it occurs to you that your current collective agreement is set to expire in 2008.

Even if the expiration date is months down the road, it’s important to be prepared and ready for collective bargaining.

Collective bargaining takes up significant time, effort, and resources, and it often seems like you’re just settling one collective agreement before you’re back for the next round. As a result, it’s common that employers start too late to prepare for collective bargaining.

However, to get the best results, it’s important to be prepared as early as possible. What can you do at an early stage to prepare for bargaining? What can you do to streamline the bargaining process?

Below we have set out some tips and strategies that may help to ensure that your next round of collective bargaining goes smoothly (and in your favor), taking into account the Canadian legal regime for bargaining:

1. Do your homework. Consider:

• collecting and reviewing internal data on grievances/arbitrations;
• collecting data with respect to the bargaining unit and relevant cost issues, such as benefits costs, sick leave costs, or overtime costs;
• obtaining a legal review of the existing collective agreement and determining whether anything needs to be revised to reflect changes in legislation;
• gathering and reviewing current information on terms of settlement, including wage increase information, pay and benefit surveys, and the terms of other collective agreements in your industry; and
• reviewing the company’s short-tem and long-term business goals to ensure alignment of bargaining positions and goals.

2. Develop company goals and proposals for bargaining in advance.

3. Review with management all problems and concerns with the existing union agreement.

4. Develop a strategic plan for the bargaining process. To ensure you are ready for any steps the union may take, consider issues such as:

• whether you (not the union) should give notice to bargain;
• the timing of any required notices to government authorities;
• whether conciliation and/or mediation is mandatory prior to a strike or lockout;
• the length of time it takes to schedule conciliation or mediation with the government;
• how likely it is that a strike or lockout will occur (and therefore what contingency plans should be in place and when);
• depending on which province or federal jurisdiction you’re in, whether you can have replacement workers and what the complement of replacement workers could look like;
• whether your organization can continue operations during a strike or lockout;
• the best timing of a strike or lockout to occur; and
• what the labor board processes for dispute resolution will be.

5. Develop a communications strategy to deal with all types of communications, including:

• internally among the management team;
• during bargaining between the two negotiating committees;
• between the employer and the bargaining unit employees; and
• by the employer to third parties such as customers, clients, suppliers, and the media.

6. Prepare for the bargaining process and logistics. Where will the bargaining take place? How many people will be on the negotiating teams? How will employees on the union’s team be released from work? How will they be paid?

It’s most important to recognize that under Canadian labor laws, the required process will vary from one jurisdiction to another. There is variation in terms of notices that must be given to the government at various stages of the bargaining process and whether and when one must seek government assistance for conciliation or mediation prior to a strike or lockout.

These requirements will significantly affect the timing and pace of your bargaining process. You must therefore understand them and build them into your planning process at an early stage.

Maternity benefits – no legal right for adoptive mothers

By Kate McNeill

Across Canada, employment standards laws provide for job-protected maternity leave for pregnant employees and parental leave for parents generally. In addition, the federal government provides financial benefits during these leaves through its Employment Insurance Act (EIA).

The Supreme Court of Canada recently declined to review an appeal of a decision of the Federal Court of Appeal that stated that the right to maternity leave and employment insurance benefits is restricted to biological mothers and excludes adoptive mothers.

Maternity and parental benefits
In the Canadian context, there are two key forms of statutory benefits available to new parents – leaves of absence and employment insurance benefits.

While the two forms of statutory benefits serve different purposes (income replacement versus job protection) and arise out of separate pieces of legislation (the EIA versus employment standards laws), both forms of statutory benefits aim to support individuals who take time off work to fulfill their parenting obligations.

Maternity benefits under the EIA and maternity leave provide income replacement and job protection, respectively, for pregnant employees to support them during the time that they’re unable to work as a result of pregnancy and childbirth.

Parental benefits under the EIA and parental leave, on the other hand, provide income replacement and job protection, respectively, for parents during the time that they’re off work as a result of their child-care obligations immediately after the birth or adoption of a child.

The key distinction between maternity protection and parental protection is that while parental benefits and leave are available to any parent – male or female, adoptive or biological – maternity benefits and leave have in the past been available only to biological mothers.

Case before the court: Tomasson v. Attorney General of Canada
In 1999 and again in 2003, Patti Tomasson and her husband adopted a newborn infant. After the adoption of each child, Tomasson applied to the Employment Insurance Commission for maternity and parental benefits. In both cases, she was granted parental benefits but was denied maternity benefits.

The Commission’s rulings were guided mainly by a decision of the Ontario Court of Appeal in Schafer v. Canada (Attorney General) where the court held that pregnancy and childbirth “constituted an inescapable biological reality” and that compensating biological mothers for not being able to work as a result of the physical condition of pregnancy didn’t constitute discrimination against any other person, including adoptive parents.

Tomasson challenged the Commission’s decision to deny her request for maternity benefits on the basis that the statutory maternity benefits provisions in question had a dual purpose: (1) recovery from the physical elements of pregnancy and (2) bonding/attachment between parent and child.

Tomasson argued that the Commission’s application of the statutory maternity benefits provisions resulted in differential treatment between adoptive and biological mothers, allowing biological mothers to spend more time bonding with their child and providing child care than adoptive mothers.

She further claimed that not allowing adoptive mothers the opportunity to bond with their children was an affront to the dignity of adoptive parents and was unconstitutional and contrary to the Canadian Charter of Rights and Freedoms.

Decision of the Federal Court of Appeal
In lengthy reasons, the Federal Court of Appeal ruled that adoptive mothers aren’t entitled to maternity benefits, for the following reasons.

First, the fact that the EIA contained separate provisions for maternity benefits and parental benefits showed a clear legislative intention to distinguish between the two purposes of physical recovery and child care. Had the maternity benefits provisions been intended to cover familial bonding as argued by Tomasson, there would have been no need to include birth mothers in the scope of the parental benefits provisions.

Further, while the court acknowledged that there is a statutory distinction between biological and adoptive mothers, that distinction was legitimate as it seeks to accommodate the needs of pregnant women as a disadvantaged group in the workforce.

The court stated that if adoptive mothers were entitled to maternity benefits, that would “implicitly constitute a finding that birth mothers deserved no more time off work than adoptive mothers, even if they must go through the burden of pregnancy and childbirth.”

Finally, the court noted that “by reason of the physiological and psychological experience resulting from pregnancy and childbirth, biological mothers are deserving of special benefits so as to accommodate their particular needs.” As a result, the court held that no reasonable adoptive mother would feel “demeaned by the granting of maternity benefits to biological mothers.”

Decision of the Supreme Court of Canada
On January 24, 2008, Tomasson’s legal battle for maternity benefits came to an end when the Supreme Court of Canada refused to hear her appeal of the Federal Court of Appeal’s decision. As a result, the state of the law in Canada remains the same – only biological mothers are entitled to maternity benefits coverage.

Law protects workers’ wages when employer is insolvent

by Kate McNeill and Brian P. Smeenk

Canada’s federal parliament has passed a law to protect workers when their employers become insolvent

A key component of Bill C-12, passed December 14, 2007, is the creation of the Wage Earner Protection Program (WEPP). The WEPP provides statutory wage protection for workers when their employer becomes bankrupt or subject to a receivership and their employment is terminated as a result.

Prior to the WEPP, such workers were at risk of losing wages earned in the weeks before the declaration of bankruptcy or receivership because they were unsecured creditors.

Industry Canada asserts that previously only 21% of the workers affected by a corporate bankruptcy or receivership received payment of their wage claims and that those employees received, on average, a recovery of only 13 cents on the dollar. Others have questioned these statistics since secured lenders often voluntarily agree to the payment of many wage claims.

The WEPP provides those workers with government assurance that upon application to the federal government, they will receive unpaid wages and earned vacation pay for a maximum period equal to four weeks of insurable earnings under the Employment Insurance Act (approximately $3,000).

The federal government, which is the payer under the WEPP, then assumes the worker’s position as a preferred unsecured creditor and continues with the bankruptcy or receivership proceedings in the worker’s stead, leaving the worker free to pursue new employment without the burden of a fight for earned, unpaid wages.

From the perspective of an employer, the WEPP provides the comfort of having its employees taken care of, but it also adds an additional dynamic to the bankruptcy or receivership proceedings in that the federal government becomes a substitute unsecured creditor.

Who qualifies for the WEPP?
The WEPP aims to provide increased protection to employees who are rendered unemployed by the bankruptcy or receivership of their employer and who have unpaid wages and compensation at the time the bankruptcy or receivership is declared.

Not all individuals will qualify for payment through the WEPP. The following groups are not eligible to receive payment through the WEPP:

• individuals who were officers or directors of the insolvent employer;
• individuals who had a controlling interest in the business of the insolvent employer;
• individuals who occupied a managerial position with the insolvent employer; or
• individuals who were not dealing at arm’s length with the individuals listed above.

It would also appear that the WEPP doesn’t assist employees where a company is insolvent but there is no appointment of a receiver or trustee in bankruptcy. Two common examples where this would appear to be the case would be (1) where a business simply shuts down in the absence of such appointment, and (2) where there are wage claims in the course of proceedings under the Companies’ Creditors Arrangement Act.

When will the WEPP begin?
The WEPP only applies to bankruptcies or receiverships on or after the date on which the WEPP comes into force. It’s likely that the WEPP will not be in force for several months in order to allow the Federal Ministry of Human Resources and Social Development adequate time to set it up.

How does the WEPP work?
Prior to the WEPP, many secured creditors voluntarily agreed to allow the debtor employer to satisfy outstanding wage claims ahead of their superior priority claims.
In other instances, however, employees who found themselves out of pocket in the wake of a corporate bankruptcy or receivership were on their own to determine how much they were owed and how they should go about recouping their losses.

There was no positive obligation on the employer, the trustee in bankruptcy, receiver, or any other involved insolvency professional to assist employees in that regard. The WEPP has addressed these practical concerns in the following ways.

Under the WEPP, the employee may apply to the federal government for arrears of wages and compensation earned within the six-month period immediately prior to the bankruptcy or receivership. The employee assigns his or her claim to the federal government to pursue with the insolvent employer.

The WEPP also requires that the trustee in bankruptcy or the receiver proactively assist employees by attempting to determine the value of their wage and/or compensation entitlements and by informing them of their rights and entitlements under the WEPP. Specifically, the legislation requires that the trustee in bankruptcy or the receiver exercise due diligence to:

• identify all employees who are owed wages and compensation within six months of the declaration of bankruptcy or receivership;
• determine the amount of wages and compensation owed to each individual in respect to those six months;
• inform each affected employee about the WEPP and the conditions under which payments may be made;
• provide the federal government with information about what is owed to each employee; and
• inform the government once the trustee or receiver has been discharged from its duties.

Impact of the WEPP
The substantial shift in the amount and kind of information provided to employees, paired with the relative speed with which employees should be able to obtain reimbursement through the WEPP, could have a significant impact on the number of wage- and/or compensation-based claims facing a bankruptcy trustee or receiver.

However, the WEPP may compel many participants in the insolvency process to avoid bankruptcy or receivership proceedings because of the new administrative obligations imposed on bankruptcy trustees and receivers.

For further advice concerning insolvency issues, contact Kevin McElcheran of our Bankruptcy & Restructuring Group and/or Brian Smeenk or Kate McNeill of our Labour & Employment Group.