Law Times

March 29, 2010

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Law TiMes • March 29, 2010 W Environmental rules: Let's cut red tape Inside e've all heard how On- tario is spending $32.5 billion in provincial and federal funds to build roads, schools, and public transit this year and next. The message has been hard to miss with all the TV, radio, and newspa- per ads that must have cost a fortune in and of themselves. But the big question for the construction industry, an impor- tant source of jobs, is what happens after 2010 when the public money runs out? Could a simple regulatory change create 10,000 more jobs and help keep that stimulus going? Yes, says Frank Zechner, a lawyer practising environmental and construction law. He's just completed a study of the Environmental Assessment Act process for the Residential & Civil Construction Alliance of Ontario, an industry association of labour groups and contractors. Streamlining the process could have a huge impact on public works projects, save money, and create 10,000 badly needed jobs now, he says. So let's get back to that infra- structure money. How long is it go- ing to last? "I think 2010 is going to be OK," says Katherine Jacobs, director of re- search and analysis for the Ontario Construction Secretariat, which is also an industry group of unions and contractors. "There's the big transit plans and infrastructure for the Pan Am Games as well as nuclear facility construction and refurbishment on the table in Ontario, which will cre- ate business opportunities." Still, she says: "2011 is a question mark." The outcome will hinge on the private sector's ability to step in and pick up the load as the federal and provincial government stimulus packages run out. That infrastructure stimulus package specified "shovel-ready projects" only, ostensibly so the rub- ber would hit the road faster. There was another reason, however: the dreaded environmental assessment. For a public project to proceed in Ontario, whether it's adding a new nuclear facility or simply widening a road, there has to be an environ- mental assessment. And that's the point. In some cases, an assessment is warranted, but in too many oth- ers, the construction alliance says it's a boondoggle of red tape that delays projects, smothers job creation, and adds cost. Zechner's study — the second of its kind — suggests a regulatory change could streamline the process while cutting costs and diverting more resources to the most signifi- cant infrastructure projects. It's a question of process over the end result, says construction alliance executive director Andy Manahan, who calls Ontario's rules "the most cumbersome in Canada." He's being kind. They're also among the most cumbersome in the world. That's why Singapore can build a kilometre of subway track a year and Madrid can conceptualize, Queen's Park By Ian Harvey build, and open public works proj- ects in a fraction of the time it takes to get anything done here. Of the 140 municipal projects looked at by Zechner, the average delay caused by environmental as- sessments was 20 months. That's not just 20 months of paperwork; it's 20 months of cost escalations. "A municipality says it has $2 million for a road widening, but the [assessment] takes so long [that] the cost escalates to $2.5 million," says Zechner. "So they say, 'Oh, now it's beyond our budget scope.' By the time they get to it the next year, the [assessment] data is stale, so they have to do an addendum. And still the costs are rising." Zechner says about 14 cents of every dollar spent on infrastructure end up going to environmental as- sessment costs and delays. Now, no one is saying we should dispose of those processes and start building nuclear power plants and waste treatment centres without proper analysis. "But do you need an [assess- ment] to widen a road when it's in the official plan or add a bicycle lane which has zero carbon emissions?" Zechner asks. Indeed, the environmental assess- ments in some cases have become political footballs where opponents of a project can take their resistance to pedantic levels. Witness the City of Toronto's move to spend $100,000 to argue against a sewer line running from York Region to Durham Re- gion without crossing Toronto's juris- diction. The construction alliance is hop- ing Queen's Park will work with Ottawa to accept one level of regu- lations, thereby eliminating duplica- tion and dispensing of further studies of alternatives. It also wants to remove so-called "bump-up" requests for formal re- views under the regulations if they are frivolous or vexatious, although making the judgment call on that one is a potential political nightmare. Finally, it wants to create a mu- nicipal-class environmental assess- ment regulation to fast-track basic infrastructure projects in the same way the government streamlined the process for public transit. No one is arguing for abandoning environmental assessments. Instead, the call is for a recognition that pub- lic works are generally for the pub- lic good and that we shouldn't be spending money allocated for sew- ers, water mains, roads, and bridges on a process gone mad. LT Ian Harvey has been a journalist for 32 years writing about a diverse range of issues including legal and political affairs. His e-mail address is ianharvey @rogers.com. COMMENT Employee bonuses: Are they discretionary? A BY NIKOLAY Y. CHSHERBININ For Law Times side from base salary, employment contracts frequently offer addi- tional economic incentives. Typi- cally, these include deferred profit-shar- ing plans, short- and long-term incentive plans, stock options, pension benefits, corporate discounts, discretionary bo- nuses, and merit compensation. Discretionary bonuses are particularly apt to be confused with merit compen- sation plans. Though each category fits within the rubric of incentives, the term discretionary bonus refers to plans with no predetermined performance objec- tives or outcomes, while merit compen- sation plans rely upon the achievement of set personal or cor- porate performance targets. This dichotomy often shows up in employment con- tracts stating, for example: "Your re- muneration will be further enhanced by a discretionary bonus of 15 per cent" or, in other cases, that "your remuneration will be further enhanced by a bonus of 15 per cent should your department reach $1 million in annual sales." Importantly, when the employment contract provides for a discretionary bonus, the employee acquires no contractual right to it but an expectation of it. Rights and expectations differ, of course, as do wants and needs. The right to a bonus, as in the latter sce- nario, is legal and relates to the employer's liability, while the expectation of a bonus, as in the former scenario, is factual and relates to damages. Simply by characterizing a bonus as discretionary may not always shield employers from liability, however. The discretionary aspect means that it's not automatic. A bonus may lose its discre- tionary character if there is proof that it has become an integral part of an em- ployee's wage structure, particularly if it constitutes a significant component of the total compensation. A related obser- vation is that the more often the employ- er pays the bonus, the less discretionary it becomes. Moreover, the term discretion implies reaching a decision based on wide crite- ria, ranging from an employer's financial ability to pay the bonus to refusal to pay it based on an employee's performance. Purely subjective considerations can also come into play, such as preventing the employee's earnings from exceeding those of a manager. Having adopted a supervisory responsibility over the em- ployer-employee relationship, Canadian courts have implied an obligation on employers to exercise their discretion in good faith. Canadian jurisprudence provides the following scenarios when dismissed em- ployees typically assert a claim for a bo- nus as part of their salary structure: — When an employer dismisses an employee during the period of bonus cal- culation. In this case, the employee will be in a position to argue an entitlement to a pro-rated bonus based on the duration of employment and the degree of achieve- ment of predetermined objectives. — When an employee is dismissed be- fore the period of bonus calculation. In www.lawtimesnews.com Speaker's this situation, the employee's entitlement to a bonus will be based on the historic average during the preceding three years. — When an employee is dismissed be- fore the bonus payout date but after the period of calculation. In this scenario, employees are in the most secure posi- tion to recover the bonus because they've already done the work for which the money was to be paid and, arguably, the employer had reaped the benefits. The claim for a bonus that would have Corner been attained during the notice period is subject to a higher test of whether the incentive has become an integral part of the employee's salary structure. For ex- ample, in Derksen v. Wasa Insurance Co. Ltd. (Liquidator of ), the B.C. Court of Appeal upheld the amount of the bonus awarded to the em- ployee based on her claim for a loss of op- portunity to earn it. The key factor in this case was that the em- ployer had promised to pay the employee a bonus if she stayed until the agreed date but then wrongfully terminated her prior to that time. Where it's a condition of a bonus plan that an employee must remain "actively employed" until the employer pays the incentive to be eligible for payment, the court, in Schumacher v. Toronto-Domin- ion Bank, held such a provision to be in- effective. The facts of this case arose out of a constructive-dismissal setting. The court held that Schumacher's involuntary inability to comply with the condition of the bonus plan wasn't a justification for the employer to decline the payment as part of the employee's damages. Signifi- cantly, the court made an explicit refer- ence to the concept of fairness: "Where the bonus was promoted as an integral part of the employee's . . . compensation, it would be . . . unfair to the employee to be deprived of the bonus by reason of the unilateral action of the employer." However, in cases where employees assert a claim for an outstanding bonus for the time period when they were actu- ally employed, it appears to be uncertain what effect a successful defence of just cause may have upon a claim for the in- centive. As a result, the designation of a bonus as discretionary creates no contractual right, but merely an expectation, in fa- vour of an employee's entitlement to the money. A survey of cases demonstrates that the courts aren't averse to conflating expectations with rights, particularly in circumstances where the employer pro- moted the bonus as, or it has become, an integral part of an employee's salary structure. Moreover, the courts will deem the bonus provisions ineffective if they un- fairly deprive an employee of the incen- tive through an employer's unilateral action. Since the bonus operates within a contractual framework, employers are restricted, under pain of liability, in their power to unilaterally change an incentive plan or methods associated with measur- ing the achievement of objectives. LT Nikolay Y. Chsherbinin is an employment lawyer at Grosman Grosman & Gale LLP in Toronto. He can be reached at 416-364- 9599 or nikolayc@grosman.com. PAGE 7

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