OCTOBER 2007

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www.fdhlawyers.com

In This Issue...• Lawyer Profile - Tibor Sarai

• The Elimination of MandatoryRetirement: Its Impact

• Incorporation of the Professional Practice

• FDH News & Legal Tidbits

• InProfile - Telecom Computer

THE FINE PRINT

Natalie Duda and Adrianna Dekker, both of Fibrewired Hamilton, joined Christopher Neufeld and CN Rail’s Andris Baders at the Hamilton Port Days Golf Tournament

Ron Weston, Paul Gyorgi, Gary Calhoon and Don Harder participated in the Straight from our Hearts Golf Classic

THE FINE PRINT

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Lawyer Profile - Tibor Sarai

The Elimination of Mandatory Retirement: Its Impact

Tibor practiced with a Toronto law firm before he joined the Feltmate Delibato Heagle litigation team in the summer of 2003. Tiborcarries on a varied commercial litigation practice since his call to the bar in 1989, with an emphasis on shareholder and partnershipdisputes, oppression remedies, franchise issues, creditor's rights, estate litigation, intellectual property litigation and employmentrelated matters. Tibor is a member of the Civil Litigation, ADR and Intellectual Property sections of the Canadian Bar Association aswell as the Advocate's Society and Intellectual Property Institute of Canada.

By Paul Lewis and Tibor Sarai

On December 12, 2006, the OntarioGovernment passed legislation eliminatingage 65 as the age of mandatory retirement.As a result, employers with employees at orapproaching age 65 years are faced with thecontinuing prospect of making adjustmentsand planning for the employment of anaging workforce.

With the elimination of mandatoryretirement at age 65, employers are nowfaced with the fact that workerscompensation insurance does not coverthose over age 65 who suffer workplaceinjury or illness. It is therefore incumbentupon employers to ensure that appropriateand separate insurance is in place for thoseemployees who are 66 years of age or older.An employer should also review its insurancepolicies in order to ensure they will providecoverage to employees beyond the age of 65.In many cases, policies exclude coverage foremployees who are beyond age 65.

An employer must now also be concernedwith Section 5.1 of the Ontario HumanRights Code (the Code), which guaranteesequal treatment with respect to employmentwithout discrimination on the grounds ofage. With the removal of mandatoryretirement, the employer is faced withpotentially much higher payouts in the eventof termination of employment of an olderemployee. Pursuant to the Code, anemployee cannot be terminated simplybecause he or she is 65 years of age, unless

the employee is an airline pilot or fighterpilot, or is engaged in some other occupationwhere the level of performance is justifiablylinked to age. Policy grounds may justifymandatory retirement at age 65 in certainother occupations or professions, such asuniversity professors and doctors.

Strategies for Employers

Depending upon the corporate structureand the type of business endeavour, there areadvantages and disadvantages associated withan arbitrary retirement age of 65. It isdefinitely beneficial to having an older,experienced employee, and indeed, givencertain skill shortages, some sectors may haveno choice but to continue to employindividuals beyond the age of 65. However,an employer must be concerned with thepotentially high cost of terminating anemployee of age 65 years or older, especiallyif that employee has been a long serviceemployee (20 years of more). The reasonableseverance expectations of such an employeecould equal 24 months wages, includingbonus and benefits, notwithstanding thereceipt of pension benefits to which he or shewould additionally be entitled.

In light of the potential for increased costsfor severances, increased diligence is nowrequired in the performance managementprocess and an increased requirement tomanage disability and insurance issues. Thisnecessitates that an employer survey thelandscape with respect to senior employees,

consider whether they are in a position toinstitute a retirement policy, institute theprocess by which the retirement policy will beintroduced and at what stage of theemployee’s tenure, whether by employmentcontract at the beginning of employment(preferably) or at a later stage where a “quietsettlement” might be in order, consideroptions to suggest to employees nearretirement, such as flexible part-time or non-traditional working arrangements, while atall times assuring the employee that theoptions being presented do not smack of agediscrimination.

Without a policy in place, an employer mayconsider “working notice”, which wouldallow the older worker to work towards his orher end of employment instead of being“packaged out”. Of course, there can be acombination of both working notice and aseverance package. The latter holds someattraction to both employer and employee,the former not wanting to risk deteriorationin performance, and the latter wishing tohave some lump sum award to take with himor her as a bonus at the end of his/herworking life.

The most important consideration is to beaware of the “65” issue so as not to be caughtoff-guard. An employer cannot terminateolder employees who have reached the age of65 simply because they have reached whatused to be retirement age.

THE FINE PRINT

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Incorporation of the Professional Practice

By Ron Weston

Until recently, professionals were unable toutilize a corporation to operate their practiceand to enjoy many of the benefits derived byother individuals operating non-professionalbusinesses through corporations. Changes tothe Ontario Business Corporations Act wereeffected in 2001 which allowed physicians,lawyers, accountants, veterinarians and socialworkers to incorporate. The technical rules forsuch incorporations were simple, requiringrestrictions only on share ownership (limitedto the professional and not family members)and the authorized scope of business for suchcorporations.

The question that arose at the time ofevaluating professional incorporation waswhether there were sufficient benefits to makeincorporation attractive to the practitionerand which would outweigh the cost of thereorganization and maintenance of acorporate entity. Due to the fact that theprofessional was not sheltered frommalpractice liability nor could there beincome splitting to lower earning spouses orfamily members, the reaction of professionalsto the new opportunity was modest. It wasperceived that incorporation was onlybeneficial to a practitioner who was able toleave excess earnings in the corporation whichwould attract a lower rate of tax as a result ofthe small business deduction (approximately20%). Since most professionals tend to draw as

much income out of the business as possible todefray personal and living expenses, very fewchose to avail themselves of the corporateform of business association.

Presumably in recognition of the limitedappeal of the professional incorporationinitiative, the Ontario government expandedthe share ownership eligibility requirements inmedicine and dental professionalcorporations to include family members,provided that the shares owned by familymembers are non-voting. This has created thetax incentives necessary to make corporationsattractive as an income splitting device. Hence,spouses and adult children with lessermarginal tax rates can participate in thedistributed earnings of professionalcorporations resulting in a lesser overall taxcost on distributed earnings. Unfortunately,the “kiddie tax” restrictions continue to applywhere minors hold shares.

The legal steps necessary to transfer anindividual’s professional practice to aprofessional corporation are relatively straightforward. The value of the individual’s practicemust be ascertained and the assets comprisingthe practice transferred or “rolled into” theprofessional practice in exchange for shares ofequal value. This is a classic freeze techniquewhich then allows the corporation to issue newnon-voting equity shares to family membersfor nominal share subscription prices. If aprofessional has previously incorporated and

transferred the business assets to thecorporation, a simple exchange of shares canbe used to freeze the value of those shares withfamily members free to subscribe for sharecapital immediately thereafter at a modestshare price. Each profession’s governing bodyhas certain restrictions concerning shareownership, corporate names, etc., but theserestrictions tend to be consistent with therestrictions imposed by the government.

Now a professional has the opportunity toenjoy most of the typical benefits ofincorporation, including limited assetprotection from creditors, perpetual existence,income splitting and tax deferral. The majordownside is the expense of establishing thecorporation and rolling in the existingbusiness assets as well as the ongoingaccounting and legal costs associated withmaintaining the corporate entity. Whether thisopportunity makes business sense to anyspecific professional is a matter that ought tobe discussed between the professional and hisor her accounting, tax and legal advisors.

Together with the City of Hamilton, Hamilton International Airport, Hamilton PortAuthority, Canadian International Freight Forwarders Association and SupplyChain & Logistics Canada, Feltmate Delibato Heagle will host the SouthwesternOntario Transportation & Logistics Conference to be held in March, 2008. Formore information contact Christopher Neufeld at cneufeld@fdhlawyers.com or905-631-3662

THE FINE PRINT

FDH News & Legal Tidbits

© Feltmate Delibato Heagle LLP, 2007.

The Fine Print provides a general overview of legal matters and should not be acted upon without consultation with your professional advisors.Any questions or comments concerning The Fine Print should be directed to our Editor, Debi M. Sutin, at 905-631-3643 or dsutin@fdhlawyers.com.

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BURLINGTON OFFICEMiles Feltmate - Managing PartnerCorporate/CommercialDirect Line: 905-631-3653

Fulvio J. Delibato - Real Estate, Wills, Family LawDirect Line: 905-631-3644

Ronald Weston - Corporate/Commercial, Real EstateDirect Line: 905-631-3656

Brian Heagle - Corporate/CommercialDirect Line: 905-631-3642

Paul Lewis - LitigationDirect Line: 905-631-3650

James Tuck - Corporate/Commercial, Litigation, Real EstateDirect Line: 905-631-3646

Debi Sutin - Corporate/Commercial, Franchise LawDirect Line: 905-631-3643

Christopher Neufeld - Corporate/Commercial,Finance and TransportationDirect Line: 905-631-3662

Paul Lawson - Corporate/Commercial, Real EstateDirect Line: 905-631-3663

OAKVILLE OFFICETibor Sarai - LitigationDirect Line: 905-287-2205

Cam Neil - Corporate/Commercial, Litigation Direct Line: 905-287-2200

Lori K. Brown - Wills and Estate PlanningDirect Line: 905-287-2206

COUNSELGordon Morton Q.C. - Family LawTelephone: 905-522-8147

Peter Welsh - Corporate/CommercialTelephone: 905-337-3121

Henry J. Krupa - Environmental, Energy & Government RelationsDirect Line: 905-287-2207

Pam Teckoe - Director Of Administration Direct Line: 905-631-3654

If you would prefer to receive The Fine Print inelectronic format, please contact Pam Teckoe atpteckoe@fdhlawyers.com

• Ron Weston attended the 2007 Straight from our Hearts Golf Classic at Glen Abbey GolfClub on July 10, 2007. The tournament raises funds annually for the Hospital for SickChildren Foundation – Division of Cardiology.

• Debi Sutin has been named to the 2008 edition of The Best Lawyers In Canada in thespecialty of Franchise Law.

• James Tuck was elected President of Burlington’s Sound of Music Festival for a two-yearterm. The Festival is held annually in June on the City’s Downtown Waterfront and hasbeen voted one of the Top 50 Festivals in Ontario for the 6th year in a row. The 2008Festival will run from June 12th to 15th

• Feltmate Delibato Heagle was a hole sponsor at the 9th Annual Carego GolfTournament, attended by Miles Feltmate at Willow Valley Golf Club on September 14,2007. Proceeds raised from the tournament were donated to the United Way “From Hereto the Bay” Program

• Debi Sutin has been invited to speak at the “How to Franchise Your Business Seminar”hosted by the Canadian Franchise Association on Wednesday October 24, 2007.

• Feltmate Delibato Heagle was a lead sponsor at the YMCA-Brady Financial GolfTournament, held on September 12, 2007. Paul Lewis and Brian Heagle participatedin the tournament which raised more than $60,000 for the Y’s “Strong Kids” program.

• Debi Sutin will lead a workshop on Alternative Franchise Expansion Models at theOntario Bar Association’s 7th Annual Franchise Law Conference, to be held on November15, 2007.

• Christopher Neufeld has been elected to the Board of Directors of Burlington’s Sound of Music Festival. He will serve as Chair for Special Projects and Legal Counsel for the Festival.

Paul Lewis and Brian Heagle teamed up with Wayne Ruttle of AdFlow Networks and Bruce Heagleof NSBL International at the YMCA-Brady Financial Golf Tournament