September 2003 Issue

FDH Newsletter |

Article 1: New Obligations in Collecting, Disclosing and Using Personal Information

Article 2: Selling Your Business

Article 3: ISO Certification — For Everyone Who Wants to Certify Their Success

Article 4: Written Employment Agreements — Are They Necessary?

New Obligations in Collecting, Disclosing and Using Personal Information

By Vin G. Tsui

Businesses have been collecting information on its suppliers, customers, employees and potential customers for years. The information collected has been used by businesses for numerous purposes, including customer preferences, target marketing and direct and indirect sales.

Effective January 1, 2004, federal legislation will affect how your company collects, discloses and uses personal information. The new legislation gives individuals control over their personal information. Essentially, this law sets out the ground rules for the management of personal information in the private sector and balances an individual’s right to privacy with the need of organizations to collect, use and disclose personal information for legitimate business purposes.

The Personal Information Protection and Electronic Documents Act (Canada) (the “Act” or “PIPEDA”) has been in place and applicable to federally-regulated industries for more than 2 years. In January, it will apply to any organization in Canada that is engaged in commercial activity. “Personal information” includes any information about an identifiable individual, including such information as credit history, disciplinary actions and personal medical information, but excluding name, title, business address or business telephone number of an employee of an organization.

The Act requires each organization to be responsible for personal information that is under its care and control (even if the information has been transferred to a third party). This requires that all organizations which are subject to the Act:

Designate a person who will be responsible for compliance with the Act;
Prior to collecting any personal information, disclose to the person providing the information:

why the information is being collected;
what the information will be used for;
to whom the information will be disclosed; and
obtain the individual’s informed consent.
(There are some exceptions to the need for consent, such as information collected for the purpose of law enforcement, debt collection, scholarly research and emergencies).

Collect, use and disclose only personal information that is reasonably necessary in the circumstances and for which consent has been given;
Ensure that the information is kept accurate and complete. An organization must allow an individual access to his/her personal records, allow the accuracy of the information to be challenged and have inaccuracies corrected;
Upon request, provide the individual with access to his or her personal information, subject to some limited exceptions; and
Implement policies to protect personal information against unauthorized access, disclosure or use and procedures to respond to complaints or other inquiries.

An organization’s privacy policies and procedures must be sufficiently documented so that they can be explained upon request.

The Act provides recourse to the federal Privacy Commissioner to investigate and audit an organization’s privacy information practices. The Act allows for proceedings to be brought in the Federal Court of Canada which is empowered to, among other things, award damages for a breach of the Act.

We recommend that all organizations conduct a thorough review of the personal information which they have collected and examine their current policies and procedures for information collection. This review and examination is necessary in order that the safeguards and policies required for compliance with the Act can be put in place. Such a review will take time. Accordingly, you are well advised to take the necessary steps toward compliance as soon as possible so that a functioning system is in place prior to the January 1, 2004 deadline.

Our firm is prepared to assist you in understanding PIPEDA and your obligations under this new law as well as to assist you in creating or revising your privacy policy in order to comply with it.

Selling Your Business

By James Tuck

If you are thinking about selling your business, there are some simple strategies which can maximize the return on your efforts. Although every transaction involves its own unique set of challenges, there are a number of common issues to be aware of so that you avoid being caught unaware during the negotiations.

Preparing your Business for Sale

In conjunction with your professional advisors, you will want to develop a marketing plan. This is a critical step as it will assist in the determination of a realistic value for your business and, as well, identify potential purchasers. Tax advisors can assist to determine whether to structure the transaction as a sale of assets or shares. Generally, the seller wants to sell shares of the company which operates the business due to superior tax treatment while, in most cases, it is advantageous for a purchaser to purchase the assets used in the operation of the business. There are exceptions to this general rule so tax advice, specific to your particular circumstances, should be sought at the outset.

In determining potential buyers, consideration can be given to those within your organization, such as senior managers or employees. Even direct or indirect competitors may be potential buyers.

Additional matters to consider prior to putting your business “on the market” include whether you would finance a portion of the purchase price, whether you would be prepared to give a covenant not to compete for a certain period following the sale of your business and whether you would, at the request of the purchaser, remain with the company during the transitional period or to consult on a periodic basis. You should have the answers to these questions prior to commencing negotiations in order to encourage a smooth negotiation process. You should, as well, inquire as to whether the consent of third parties may be required, such as the landlord under a premises lease or a lessor of leased equipment. Finally, the impact of the sale on key customers, suppliers and employees must be taken into account and a strategy developed for dealing with these parties.

Letters of Intent

An Agreement of Purchase and Sale (“ APS”) will be the main document between the vendor and the purchaser and will set out all of the terms and conditions for the sale. By their nature, an APS can be time consuming to negotiate as both parties come to the table with pre-conceived ideas of how they anticipate the sale to proceed. For this reason, Letters of Intent (“LOI”) are often used as a first step along the road to finalizing a sale transaction.

LOIs summarize, often in point form, the essential terms and closing date while leaving the less essential details to be negotiated and incorporated, with the terms of the LOI, into the APS. We have found LOIs to be a useful tool to avoid basic misunderstandings about the deal and, from the seller’s perspective, to ensure that both parties are in agreement on, at the very least, the essential terms of the purchase and sale.

Despite their brevity, great care must be taken in drafting the LOI to ensure that it is binding, non-binding or only partially binding, depending upon the parties’ intentions. Remember, the ultimate goal is always a comprehensive and binding APS.

LOIs are often signed in conjunction with a Standstill Agreement. A prospective purchaser does not want to be competing with other suitors for your business. Standstill agreements are often requested by a purchaser to prevent you from dealing with other prospective buyers during the period that the parties are negotiating the terms of sale or during the period that the prospective purchaser is undertaking its investigations, or “due diligence” of the business.

Deposit

Given the costs involved in preparing your business for sale and negotiating the terms of sale, it is important to insist upon a cash deposit from a prospective purchaser. Not only is a deposit the best indication of the seriousness of the purchaser but, if the purchaser elects not to complete the transaction without due cause, the deposit may be retained by the seller to offset some or all of the seller’s transaction costs.

Preparing for Closing

After you have procured an Offer to Purchase or LOI, your business will usually become the subject of a due diligence inquiry by the purchaser and its professional advisors. This is a thorough investigation of the business undertaken prior to closing, in an effort to gain further knowledge about the business and to discover any potential problems. Very often, the purchaser’s obligation to complete the transaction will be subject to satisfaction with the due diligence investigations. Your accountant and other professional advisors can assist you in preparing for this process to answer any questions that may arise.

Finally, and perhaps most importantly, as a prospective purchaser will have full access to your business during the due diligence period, you will want to ensure that, if a transaction of purchase and sale is not completed for any reason, the prospective purchaser is bound to maintain in confidence any information that it obtains during this period and covenants not to use it either for the benefit of itself or any other party. The terms of the confidentiality covenants can be included in the LOI or in a separate Confidentiality Agreement.

As the sale of one’s business can often be a demanding experience, the assistance of qualified professional advisors can facilitate the process from the decision to sell through to the completion of the transaction.

ISO Certification — For Everyone Who Wants to Certify Their Success

By Miles Feltmate

We have had inquiries from a number of our clients regarding ISO Certification: what it stands for, how to achieve it and what it means to their particular business. In response to these inquiries, we have dealt exclusively with the Business Development Bank of Canada (“ BDC”) and, in particular, BDC’s Consulting Groups in both Mississauga and Halton Region. With their assistance, the following article is intended to help explain the significance of ISO Certification and what it can do for your business.

ISO is a series of quality management and assurance standards and guidelines, akin to a “seal of approval”. Businesses seeking to gain and maintain a competitive advantage in the global marketplace know that they need solutions of international caliber. One of these solutions is the ISO certification.

ISO certification confirms the consistency in the way that a company operates and delivers its products or services. This badge of excellence not only increases a company’s potential for international recognition but also helps the company meet requirements for inclusion on tender lists. Other benefits of ISO certification include improved efficiency in operations, reduced waste, consistent control of key processes, enhanced marketing appeal and the effective management of risk. All of these lead to improvement in a company’s bottom line.

Chris Secord, Manager of the BDC Consulting Group in Mississauga, advises that most companies initially undertake an ISO certification for external benefits. However, he adds, once they become involved in the process to achieve certification, they begin to see that the internal benefits far outweigh the external ones.

The most recent up-to-date version of the ISO quality management standard is known as “ISO 9001: 2000” which has been implemented by more than 400,000 organizations worldwide. It improves upon the previous standard, set in 1994, and known as “ISO 9000”. The new standard is simpler, easier to use and more focused on customer satisfaction. With ISO 9001: 2000, companies can implement a quality management system that moulds itself to their business rather than having to re-design the business to meet the standard.

According to Roger Hall, Manager of the BDC Group in Halton, the philosophy behind ISO is actually very simple: documenting what you do on a day-to-day basis in the operation of your business allows you to analyze, and then improve upon, the various processes and procedures, currently in place.

Certification is not achieved overnight. In order to meet the standards for certification, a substantial amount of work is required to be done. Accordingly, most companies retain consultants to assist in analyzing, and then properly documenting, their processes and procedures. The BDC consultants work closely with a business and its employees to guide them through each stage of the certification process with a hands-on approach, tailored to meet each client’s specific needs.

The first step in the process involves an examination and analysis of a company’s existing management systems and procedures. Then, with senior management endorsement and a team in place to oversee and implement the process, a determination is made as to what is needed to meet the ISO 9001: 2000 standards. Plans are then developed to implement the changes necessary to improve the company’s quality management systems and procedures. These changes are then documented, made available to all employees in the organization, implemented and finally, audited. Once all of these steps have been completed, the business is in a position to apply for ISO 9001: 2000 certification. Application is made to a registrar officially accredited by the Standards Council of Canada.

Chris Secord recommends implementing procedures that are able to be continually improved upon and adapted to changing needs and circumstances. The BDC’s emphasis on product realization and customer satisfaction leads to enhanced performance and greater efficiency which ultimately results in world-wide recognition of a commitment to quality. This, adds Mr. Secord, allows a company to compete in any market-place anywhere in the world.

If you would like further information on the ISO Certification process, you can contact Chris Secord in Mississauga at 905-803-7927 or Roger Hall in Halton at 905-315-9252.

Written Employment Agreements — Are They Necessary?

By Paul Lewis

In today’s marketplace, more and more employers are recognizing the need for written employment agreements. Advantages to a properly drafted employment agreement flow to both parties: to the employer, there is the possible escaping of a requirement to provide termination pay in excess of that required by the Employment Standards Act (Ontario) while to the employee, an employment agreement sets out the expectations of the employer and outlines the employee’s entitlement to salary, benefits and other possible compensation. Both parties must be cautioned, however, to ensure that what they ultimately sign will be enforceable and protect the rights and entitlements that they have each bargained for.

The Employment Standards Act (Ontario) (the “Act”) prescribes the minimum notice entitlement for terminated employees. An employer that wants to limit its obligation to provide notice or termination pay in lieu of notice must have a written agreement to this effect with its employee. This agreement must be carefully drafted, must comply with the requirements of the Act and the terms must be clear and unambiguous in order for it to be enforceable.

This raises the question “to what extent can an employer limit its liability to provide reasonable notice or termination pay in lieu of notice”. In effect, an employer may limit its liability to provide working notice or termination pay in lieu of notice to that which is expressly required by law under the Act. To avoid the possibility that an employment agreement may run afoul of the Act, a comprehensively drafted employment agreement should make reference to the Act and should:

provide that the employee will receive the greater of (i) his/ her entitlement under the Act; and (ii) a fixed amount of reasonable notice or pay in lieu of notice; or,
provide for a notice period and/or termination pay and severance pay which is in excess of the employee’s entitlement under the Act.

Obviously, the best time to obtain a written employment agreement is at the time an offer of employment is extended. At that time, the employee should also be provided with a letter informing the employee that the execution of the employment agreement is a condition of the employee being hired. The prospective employee should also be provided with adequate opportunity to obtain independent legal advice prior to executing and returning the agreement. An employer that follows these guidelines will make it difficult for an employee to argue that an employment agreement is unenforceable.

An employment agreement which purports to limit an employer’s liability can also be obtained from a long-standing employee with whom the employer has never had a written employment agreement so long as a number of simple steps are followed. First, the employment agreement must provide a benefit or “consideration” to the employee in exchange for its signature. The consideration for obtaining a written employment agreement mid-employment can include such things as an increase in wages, the opportunity to participate in a new or improved bonus plan or increased benefits. The continuation of an employee’s employment is not consideration enough. In Techform v. Wolda, a recent decision of the Ontario Court of Appeal, the Court held that, fundamental to consideration in the context of an employment agreement is that, in return for the new promise received by the employer, something must pass to the employee which goes beyond that which the employee is entitled under its current employment arrangement. The Court stated, “continued employment represents nothing more of value flowing to the employee than what the employee is entitled to receive under its current employment agreement”. Accordingly, an employment agreement that is presented to an employee in a “sign or you will be fired” fashion, is unlikely to be held enforceable.

If additional compensation or other consideration is not possible, an employer may provide the employee with reasonable notice (or pay in lieu of notice) in recognition of the fact that the employee’s continued employment is dependent upon the execution of the employment agreement. If the employee is unwilling to sign an employment agreement in such a circumstance, the employee will be taken to have been provided with a reasonable period of time to pursue alternate, comparable employment, thereby absolving the employer of the obligation to provide termination pay in lieu of notice.

In summary, an employer attempting to limit its liability to provide reasonable notice or termination pay in lieu of notice should:

require that a prospective employee execute a written employment agreement as a condition of being hired;
offer a benefit to an existing employee in exchange for the execution of a written employment agreement; or
provide reasonable notice (or pay in lieu of notice) to an employee who is unwilling to execute an employment agreement.

Employers should, in all cases, obtain proper legal advice to ensure that the agreements with their employees withstand the scrutiny of the Courts.