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10 Common Legal Mistakes   Businesses Make and How to Avoid Them Douglas H. Hancock Daigle & Hancock  Professional Corpora...
The Raymond Soroka  Breakfast Series
Mistake #1:  Unsecured Advances <ul><li>Shareholder Loan </li></ul><ul><li>Shareholder </li></ul><ul><li>  Obtain Security...
Unsecured Advances <ul><li>Holding Company </li></ul><ul><li>    Security  Loan Money  </li></ul><ul><li>    back </li></u...
Unsecured Advances <ul><li>Why is an unsecured advance a problem? </li></ul><ul><ul><li>BANKRUPTCY!!!!! </li></ul></ul><ul...
Unsecured Advances <ul><li>How does one protect themselves? </li></ul><ul><ul><li>Proper Documents </li></ul></ul><ul><ul>...
Mistake #2: Failing to Charge Interest <ul><ul><li>Essential Elements of a Loan </li></ul></ul><ul><ul><ul><li>Principal A...
Failing to Charge Interest <ul><li>Federal  Interest Act </li></ul><ul><ul><li>“ whenever any interest is payable by the a...
Failing to Charge Interest <ul><li>Examples: </li></ul><ul><ul><li>“2.00 per cent payable monthly”  </li></ul></ul><ul><ul...
Mistake #3:  Contracting with the Unknown <ul><li>Consumer Credit Application  </li></ul><ul><ul><li>Name / Address </li><...
Contracting With the Unknown <ul><li>Credit Evaluation </li></ul><ul><ul><li>Factors </li></ul></ul><ul><ul><ul><li>Credit...
Contracting with the Unknown <ul><li>Credit Approval </li></ul><ul><ul><li>Develop credit policies that are consistent wit...
Mistake #4: The Danger of Standard Form Contracts <ul><li>General Provisions </li></ul><ul><ul><li>Date </li></ul></ul><ul...
The Danger of the Standard Form Contracts <ul><li>What are the dangers? </li></ul><ul><ul><li>There is no true meeting of ...
The Danger of the Standard Form Contracts <ul><li>Example of Standard Form Contract – Online Agreements </li></ul><ul><ul>...
The Danger of Standard Form Contracts <ul><li>Case Law </li></ul><ul><ul><li>Kanitz v. Rogers Cable Inc. (2002), 58 O.R. (...
Mistake #5: Absence of Written Agreement <ul><li>Why a have a written contract? </li></ul><ul><ul><li>Enforceability </li>...
Absence of Written Agreement <ul><li>When is a written contract required? </li></ul><ul><ul><li>Any contract which cannot ...
Absence of Written Agreement <ul><ul><li>Real Property </li></ul></ul><ul><ul><ul><li>Statute of Frauds </li></ul></ul></u...
Mistake #6:  Firing Employees <ul><li>An employee can be fired for just cause or for no cause, as long as the employee is ...
Firing Employees <ul><li>Just Cause </li></ul><ul><li>Dishonesty </li></ul><ul><li>Criminal activity </li></ul><ul><li>Ins...
Firing Employees <ul><li>You’re Fired! </li></ul><ul><ul><li>Proving Just Cause </li></ul></ul><ul><ul><ul><li>Factors Cou...
Firing Employees <ul><li>Case Law </li></ul><ul><ul><li>Leitner v. Wyeth Canada , (2010) ONSC 579 (CanLII) </li></ul></ul>...
Firing Employees <ul><li>Constructive Dismissal </li></ul><ul><ul><li>Supreme Court Definition:  “Where an employer unilat...
Firing Employees <ul><li>Examples of Fundamental Changes </li></ul><ul><ul><li>Substantial pay reduction </li></ul></ul><u...
Firing Employees <ul><li>Ontario Human Rights Code, R.S.O. 1990, c.H.19, s.5(1) </li></ul><ul><ul><li>“ Every person has a...
Firing Employees <ul><li>Human Rights Tribunal Ontario </li></ul><ul><ul><li>File application with the HRTO </li></ul></ul...
Mistake #7: Independent Contractors <ul><li>What is an Independent Contractor? </li></ul><ul><ul><li>Independent Contracto...
Independent Contractors <ul><li>Why is the distinction between an IC and an employee important? </li></ul><ul><ul><li>Sour...
Independent Contractors <ul><li>Factors </li></ul><ul><ul><li>Right to set own hours of work including vacation </li></ul>...
Independent Contractors <ul><li>Case Law </li></ul><ul><ul><li>Global Courier & Messenger Services Ltd. v. Brar , 2006 Can...
Mistake #8: Incorporating too Soon <ul><li>The ability to offset other incomes </li></ul><ul><li>Revenue Canada expects ne...
Mistake #9: Non-Competition Agreement <ul><li>What is a Non-Competition Agreement? </li></ul><ul><ul><li>An agreement by t...
Non-Competition Agreement <ul><li>Dangers of Overreaching </li></ul><ul><ul><li>Enforceability </li></ul></ul><ul><ul><ul>...
Non-Competition Agreement <ul><li>Case Law </li></ul><ul><ul><li>Lyons v. Multari </li></ul></ul><ul><ul><ul><li>Holding: ...
Mistake #10:  Consulting a Lawyer too Late <ul><li>Why Hire a Lawyer? </li></ul><ul><ul><li>Be proactive rather than react...
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Ten Common Legal Mistakes Businesses Make

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Ten Common Legal Mistakes Businesses Make from Mississauga Ontario lawyers, DH Professional Corporation, Barristers and Solicitors.

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Ten Common Legal Mistakes Businesses Make

  1. 1. 10 Common Legal Mistakes Businesses Make and How to Avoid Them Douglas H. Hancock Daigle & Hancock Professional Corporation 51 Village Centre Place Mississauga, ON L4Z 1V9 www.daiglehancock.com January 19, 2011
  2. 2. The Raymond Soroka Breakfast Series
  3. 3. Mistake #1: Unsecured Advances <ul><li>Shareholder Loan </li></ul><ul><li>Shareholder </li></ul><ul><li> Obtain Security </li></ul><ul><li> (Borrower pledges certain loan money collateral to Creditor, which Creditor can call on if Borrower defaults) </li></ul><ul><li>Operating Corporation </li></ul>
  4. 4. Unsecured Advances <ul><li>Holding Company </li></ul><ul><li> Security Loan Money </li></ul><ul><li> back </li></ul><ul><li> </li></ul><ul><li> Dividend </li></ul><ul><li>Operating Company </li></ul>
  5. 5. Unsecured Advances <ul><li>Why is an unsecured advance a problem? </li></ul><ul><ul><li>BANKRUPTCY!!!!! </li></ul></ul><ul><ul><ul><li>Unsecured Creditor = No Preference </li></ul></ul></ul><ul><ul><li>Case Law </li></ul></ul><ul><ul><ul><li>Re Royal City Chrysler, (1998) CanLII 1337 (ON C.A.) </li></ul></ul></ul><ul><ul><ul><ul><li>Holding: Court of Appeals upheld the decision that the conveyance was fraudulent and void as a preference under section 95 of the BIA </li></ul></ul></ul></ul>
  6. 6. Unsecured Advances <ul><li>How does one protect themselves? </li></ul><ul><ul><li>Proper Documents </li></ul></ul><ul><ul><ul><li>Loan Agreement </li></ul></ul></ul><ul><ul><ul><li>Promissory Note </li></ul></ul></ul><ul><ul><ul><li>General Security Agreement </li></ul></ul></ul><ul><ul><li>Registration of Documents </li></ul></ul><ul><ul><ul><li>PPSA Registration </li></ul></ul></ul><ul><ul><ul><li>Pledge </li></ul></ul></ul>
  7. 7. Mistake #2: Failing to Charge Interest <ul><ul><li>Essential Elements of a Loan </li></ul></ul><ul><ul><ul><li>Principal Amount </li></ul></ul></ul><ul><ul><ul><li>Interest Rate </li></ul></ul></ul><ul><ul><ul><li>Terms of Repayment </li></ul></ul></ul><ul><ul><ul><li>Security for Loan </li></ul></ul></ul>
  8. 8. Failing to Charge Interest <ul><li>Federal Interest Act </li></ul><ul><ul><li>“ whenever any interest is payable by the agreement of parties or by law, and no rate is fixed by the agreement or by law, the rate of interest shall be five per cent per annum.” </li></ul></ul><ul><li>So…. </li></ul>
  9. 9. Failing to Charge Interest <ul><li>Examples: </li></ul><ul><ul><li>“2.00 per cent payable monthly” </li></ul></ul><ul><ul><ul><li>WRONG </li></ul></ul></ul><ul><ul><li>“24.00 per cent payable per annum” </li></ul></ul><ul><ul><ul><li>CORRECT </li></ul></ul></ul><ul><ul><li>No Agreement = No Chargeable Interest </li></ul></ul><ul><ul><ul><li>CORRECT </li></ul></ul></ul>
  10. 10. Mistake #3: Contracting with the Unknown <ul><li>Consumer Credit Application </li></ul><ul><ul><li>Name / Address </li></ul></ul><ul><ul><li>Employment History </li></ul></ul><ul><ul><li>Sources of Income </li></ul></ul><ul><ul><li>Bank References </li></ul></ul><ul><ul><li>Credit Cards </li></ul></ul><ul><ul><li>Bankruptcy </li></ul></ul><ul><ul><li>Signature Lines </li></ul></ul>
  11. 11. Contracting With the Unknown <ul><li>Credit Evaluation </li></ul><ul><ul><li>Factors </li></ul></ul><ul><ul><ul><li>Credit worthiness </li></ul></ul></ul><ul><ul><ul><li>Size of debt burden ( “safe ratio of debt to capital”) </li></ul></ul></ul><ul><ul><ul><li>Loan size </li></ul></ul></ul><ul><ul><ul><li>Frequency of borrowing </li></ul></ul></ul><ul><ul><ul><li>Length of commitment </li></ul></ul></ul><ul><ul><ul><li>Social and community considerations </li></ul></ul></ul>
  12. 12. Contracting with the Unknown <ul><li>Credit Approval </li></ul><ul><ul><li>Develop credit policies that are consistent with the overall goal of business </li></ul></ul><ul><ul><li>Factors </li></ul></ul><ul><ul><ul><li>Costs </li></ul></ul></ul><ul><ul><ul><li>Working Capital </li></ul></ul></ul><ul><ul><ul><li>Know the Borrower </li></ul></ul></ul>
  13. 13. Mistake #4: The Danger of Standard Form Contracts <ul><li>General Provisions </li></ul><ul><ul><li>Date </li></ul></ul><ul><ul><li>Parties to the contract </li></ul></ul><ul><ul><li>Background </li></ul></ul><ul><ul><li>Terms </li></ul></ul><ul><ul><li>Signature Lines </li></ul></ul><ul><li>Provisions to Be Careful Of </li></ul><ul><ul><li>Exclusion Clause </li></ul></ul><ul><ul><li>Default and Cure Provisions </li></ul></ul><ul><ul><li>Exemption (“As-Is”) Clause </li></ul></ul><ul><ul><li>Governing Law </li></ul></ul>
  14. 14. The Danger of the Standard Form Contracts <ul><li>What are the dangers? </li></ul><ul><ul><li>There is no true meeting of the minds as required by law </li></ul></ul><ul><ul><li>Parties are not treated fairly or equitably </li></ul></ul><ul><ul><li>Laws of another jurisdiction apply </li></ul></ul><ul><ul><li>Parties attorn to laws of another jurisdiction </li></ul></ul>
  15. 15. The Danger of the Standard Form Contracts <ul><li>Example of Standard Form Contract – Online Agreements </li></ul><ul><ul><li>Browse Wrap Agreements </li></ul></ul><ul><li>What is the Danger? </li></ul><ul><ul><li>There is no evidence to show that the User agreed to the terms </li></ul></ul>
  16. 16. The Danger of Standard Form Contracts <ul><li>Case Law </li></ul><ul><ul><li>Kanitz v. Rogers Cable Inc. (2002), 58 O.R. (3d) 299 (Ontario Superior Court) </li></ul></ul><ul><ul><ul><li>Holding: Post on website was reasonable notice…Online agreement was binding on the Plaintiff even if they did not press any button to agree </li></ul></ul></ul><ul><li>What do we get out of the holding? </li></ul><ul><ul><li>For a browse wrap agreement to be binding, there must be reasonable expectation that the User of the site would see the notice (website tells them to look for it or it clearly displayed) and some kind of physical action (download or access the site). </li></ul></ul>
  17. 17. Mistake #5: Absence of Written Agreement <ul><li>Why a have a written contract? </li></ul><ul><ul><li>Enforceability </li></ul></ul><ul><ul><li>Clear Understanding </li></ul></ul>
  18. 18. Absence of Written Agreement <ul><li>When is a written contract required? </li></ul><ul><ul><li>Any contract which cannot be fully performed within one year based on its own terms </li></ul></ul><ul><ul><ul><li>Narrow interpretation </li></ul></ul></ul><ul><ul><ul><li>Examples </li></ul></ul></ul><ul><ul><ul><ul><li>A jeweler agrees to deliver one piece of custom designed jewelry to a customer each year for a period of five years. </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>A jeweler agrees to deliver five pieces of custom designed jewelry to a customer within a period of five years. </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Contract is not required to be reduced to writing </li></ul></ul></ul></ul></ul>
  19. 19. Absence of Written Agreement <ul><ul><li>Real Property </li></ul></ul><ul><ul><ul><li>Statute of Frauds </li></ul></ul></ul><ul><ul><ul><ul><li>Exception: Leases less than three years </li></ul></ul></ul></ul><ul><ul><li>Assignment </li></ul></ul><ul><ul><ul><li>Statute of Frauds </li></ul></ul></ul><ul><ul><ul><ul><li>“ All grants and assigns of a trust or confidence shall be in writing signed by the party granting or assigning the same, or by his or her last Will or devise, or else are void and of no effect.” R.S.O. 1990, Chapter S.19, Section 11 </li></ul></ul></ul></ul>
  20. 20. Mistake #6: Firing Employees <ul><li>An employee can be fired for just cause or for no cause, as long as the employee is provided notice or pay in lieu of notice </li></ul>
  21. 21. Firing Employees <ul><li>Just Cause </li></ul><ul><li>Dishonesty </li></ul><ul><li>Criminal activity </li></ul><ul><li>Insubordination/disobedience </li></ul><ul><li>Disrupt corporate culture </li></ul><ul><li>Drunkenness/drug abuse </li></ul><ul><li>Repeated absence/lateness </li></ul><ul><li>Incompetence/carelessness </li></ul><ul><li>Long-term physical/mental illness </li></ul><ul><li>Conflict of interest with employer </li></ul><ul><li>Not Just Cause </li></ul><ul><li>Personality conflict </li></ul><ul><li>Employee files complaint with government </li></ul><ul><li>Short term illness, pregnancy, childbirth, parental leave </li></ul><ul><li>Attempts to Unionize </li></ul><ul><li>Financial problems </li></ul><ul><li>Reorganization / restructuring of business </li></ul><ul><li>Ontario – refusal to work retail on Sunday </li></ul>
  22. 22. Firing Employees <ul><li>You’re Fired! </li></ul><ul><ul><li>Proving Just Cause </li></ul></ul><ul><ul><ul><li>Factors Courts will look for: </li></ul></ul></ul><ul><ul><ul><ul><li>Whether an Employee’s misconduct may be proven; and </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Whether the nature and degree of the misconduct is sufficient to dismiss the employee without notice? </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Did Employee’s misconduct cause a breakdown in the employment relationship; how senior is the employee; did employer give warning before termination </li></ul></ul></ul></ul></ul><ul><ul><ul><li>Yes to both  Just Cause </li></ul></ul></ul><ul><ul><ul><li>No to either  Employer obligated to give reasonable notice or pay in lieu of notice </li></ul></ul></ul>
  23. 23. Firing Employees <ul><li>Case Law </li></ul><ul><ul><li>Leitner v. Wyeth Canada , (2010) ONSC 579 (CanLII) </li></ul></ul><ul><ul><ul><li>Holding: Mr.Leitner’s actions were reckless, not fraudulent and that he had been wrongfully dismissed. </li></ul></ul></ul><ul><ul><li>Kontopidis v. Coventry Lane Automobiles, Ltd. , (2004) C.C.E.L. (3d) 131 </li></ul></ul><ul><ul><ul><li>Holding: Absenteeism and Subordination found to be just cause </li></ul></ul></ul>
  24. 24. Firing Employees <ul><li>Constructive Dismissal </li></ul><ul><ul><li>Supreme Court Definition: “Where an employer unilaterally makes a fundamental or substantial change to an employee’s contract of employment – a change that violates the contract’s terms – the employer is committing a fundamental breach of the contract that results in its termination and entitles the employee to consider himself or herself constructively dismissed.” Farber v. Royal Trust Co. , 1997 1 S.C.R. 846 </li></ul></ul>
  25. 25. Firing Employees <ul><li>Examples of Fundamental Changes </li></ul><ul><ul><li>Substantial pay reduction </li></ul></ul><ul><ul><li>Reduction in hours </li></ul></ul><ul><ul><li>Change in duties / responsibilities </li></ul></ul><ul><ul><li>Require employee to relocate to another city (not part of the employment contract) </li></ul></ul><ul><ul><li>Employer says either quit or you are fired </li></ul></ul><ul><ul><li>Long-term employee put on probation without good reason </li></ul></ul><ul><ul><li>Fails to promote employee as promised </li></ul></ul>
  26. 26. Firing Employees <ul><li>Ontario Human Rights Code, R.S.O. 1990, c.H.19, s.5(1) </li></ul><ul><ul><li>“ Every person has a right to equal treatment with respect to employment without discrimination because of race, ancestry, place of origin, color, ethnic origin, citizenship, creed, sex, sexual orientation, age, record of offenses, marital status, same-sex partnership status, family status or disability.” </li></ul></ul>
  27. 27. Firing Employees <ul><li>Human Rights Tribunal Ontario </li></ul><ul><ul><li>File application with the HRTO </li></ul></ul><ul><ul><li>HRTO will send Respondent a copy of the application </li></ul></ul><ul><ul><li>Respondent must use HRTO response form (Form 2) to respond to allegations </li></ul></ul><ul><ul><li>HRTO hold a hearing </li></ul></ul><ul><ul><ul><li>May require a Case Assessment Direction </li></ul></ul></ul><ul><ul><li>Additional information found on www.hrto.ca </li></ul></ul>
  28. 28. Mistake #7: Independent Contractors <ul><li>What is an Independent Contractor? </li></ul><ul><ul><li>Independent Contractor: one who works for employer under a Contract for Services </li></ul></ul><ul><ul><ul><li>Not subject to Employment Standards Legislation </li></ul></ul></ul><ul><ul><ul><li>Favored by employers because of limited legal rights conferred on the Independent Contractor </li></ul></ul></ul><ul><ul><li>Employee: one who works for employer under a Contract of Services </li></ul></ul>
  29. 29. Independent Contractors <ul><li>Why is the distinction between an IC and an employee important? </li></ul><ul><ul><li>Source Deduction </li></ul></ul><ul><ul><li>Assessment by Revenue Canada </li></ul></ul>
  30. 30. Independent Contractors <ul><li>Factors </li></ul><ul><ul><li>Right to set own hours of work including vacation </li></ul></ul><ul><ul><li>Uses own tools, equipment and often premises </li></ul></ul><ul><ul><li>Cannot be restricted by the employer from providing services to other </li></ul></ul><ul><ul><li>Subject to own control over how services are to be performed </li></ul></ul>
  31. 31. Independent Contractors <ul><li>Case Law </li></ul><ul><ul><li>Global Courier & Messenger Services Ltd. v. Brar , 2006 CanLII 1043 (ON LRB) </li></ul></ul><ul><ul><ul><li>Holding: Brar was an employee despite finding: </li></ul></ul></ul><ul><ul><ul><ul><li>Brar provided all necessary tools </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Brar set own work schedule </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Brar responsible for all expenses </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Pay was based on commission equal to 60% of the fee charged to customer </li></ul></ul></ul></ul><ul><ul><ul><li>Supreme Court said that the question is to be taken from the perspective of the worker. </li></ul></ul></ul><ul><ul><ul><ul><li>Performance of his work was under the substantial control by Global and the opportunity for profit was constrained as a result </li></ul></ul></ul></ul>
  32. 32. Mistake #8: Incorporating too Soon <ul><li>The ability to offset other incomes </li></ul><ul><li>Revenue Canada expects new business to operate at a loss for 2 years </li></ul><ul><li>Same analysis if existing business is starting a new division </li></ul>
  33. 33. Mistake #9: Non-Competition Agreement <ul><li>What is a Non-Competition Agreement? </li></ul><ul><ul><li>An agreement by the employee not to directly compete with the employer after termination of his employment </li></ul></ul><ul><li>Common Terms </li></ul><ul><ul><li>Specific time-frame to refrain </li></ul></ul><ul><ul><li>Certain geographic area </li></ul></ul>
  34. 34. Non-Competition Agreement <ul><li>Dangers of Overreaching </li></ul><ul><ul><li>Enforceability </li></ul></ul><ul><ul><ul><li>Court are reluctant to enforce non-competition agreements </li></ul></ul></ul><ul><ul><ul><li>If restrictions are reasonable between parties and in the public, then will be enforced </li></ul></ul></ul><ul><ul><ul><ul><li>Supreme Court held that reasonableness is determined, in each case, by “…an overall assessment of the clause, the agreement within which it is found, and all of the surrounding circumstances.” </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Three Main Factors: </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Time </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Activity Prohibited </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Territory (geography or other) </li></ul></ul></ul></ul></ul>
  35. 35. Non-Competition Agreement <ul><li>Case Law </li></ul><ul><ul><li>Lyons v. Multari </li></ul></ul><ul><ul><ul><li>Holding: Non-Competition Clause is unenforceable </li></ul></ul></ul><ul><ul><ul><li>Elsley Test ( Elsley v. J.G. Collins Insurance Agencies Ltd ., (1978) 2 S.C.R. 916) </li></ul></ul></ul><ul><ul><ul><ul><li>Whether employer has proprietary interest entitled to protection; </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Whether temporal or spatial features of the clause are too broad; and </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Whether the covenant is unenforceable as being against competition generally. </li></ul></ul></ul></ul>
  36. 36. Mistake #10: Consulting a Lawyer too Late <ul><li>Why Hire a Lawyer? </li></ul><ul><ul><li>Be proactive rather than reactive </li></ul></ul><ul><ul><li>Opportunity to be value added </li></ul></ul><ul><li>When to Hire a Lawyer? </li></ul><ul><ul><li>From the beginning </li></ul></ul><ul><li>How to Hire a Lawyer </li></ul><ul><ul><li>Recommendations, Research, Interview </li></ul></ul>
  37. 37. Thank You Comments? Questions?

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