Legal Issues in Hiring and Employment (PDF)

PART II Legal Issues in Hiring and During the Course of Employment Parties to an employment relationship must satisfy their legal obligations both during the hiring process and throughout the course of the relationship; these obligations, both common law and statutory, are examined in...

PART II Legal Issues in Hiring and During the Course of Employment Parties to an employment relationship must satisfy their legal obligations both during the hiring process and throughout the course of the relationship; these obligations, both common law and statutory, are examined in Part II. The contractual agreement between an employer and an employee is the heart of the employment relationship in a non-union setting. It sets out the principal terms and conditions of employment. Chapter 5 examines the individual employment contract and associated common law issues and obligations. Framing the employment relationship and providing additional legal boundaries are statutes that govern many of the rights and obligations of the workplace parties. These include employment standards statutes, human rights statutes, occupational health and safety statutes, and privacy statutes, among others. Unlike contractual obligations, these statutory requirements are non-negotiable; the parties cannot contract out of them. In British Columbia, the main statutes affecting individual employment relations are the Employment Standards Act, the Human Rights Code, the Occupational Health and Safety Regulation, the Workers Compensation Act, the Labour Relations Code, the Freedom of Information and Protection of Privacy Act, and the Personal Information Pro- tection Act. Similarly, Alberta legislation includes the Employment Standards Code, the 126  Part II Legal Issues in Hiring and During the Course of Employment ­ mployment Standards Regulation, the Alberta Human Rights Act, the Occupational Health E and Safety Act, the Occupational Health and Safety Code, the Occupational Health and Safety Regulation, the Workers’ Compensation Act, the Freedom of Information and Protection of Privacy Act, and the Personal Information Protection Act. These statutes are examined in Chapters 6 through 10. This part of the text frequently refers to unionized workplaces for several reasons. First, and most importantly, employment-related statutes, unlike the common law of individual employment contracts, apply to unionized and non-union employees alike. Therefore, how a particular legislative requirement affects the parties in the unionized context can illustrate how it applies in non-union workplaces as well. Second, where there are requirements that are unique to unionized workplaces, such as a union’s duty to support accommodation measures under human rights legislation, briefly canvassing those requirements provides a broader understanding of the overall legislative framework. Finally, for some issues, such as workplace drug testing and privacy-related questions, the text touches on how these matters are typically dealt with by arbitrators under collective agreements to provide additional context. Two federal statutes are also dealt with in this part. The Employment Equity Act, a federal statute, is considered in Chapter 7 because of its direct relevance to equity in the provin- cially regulated workplace. Chapter 10 focuses on the evolution of law related to privacy for employees, both on and off an employer’s premises. The federal Personal Information Protection and Electronic Documents Act is relevant in this regard. Finally, significant issues that are not covered by statute but have legal implications under the common law, such as contractual amendments, performance management, discipline, and vicarious liability, are discussed in Chapter 11. The Employment Contract 5 LEARNING OUTCOMES After completing this chapter, you will be able to: Identify the legal requirements for a valid employment contract. Understand the advantages of a written employment contract over an oral contract. Identify common contractual terms and understand why they must be clearly drafted. Understand factors affecting the interpretation and enforceability of employment contracts, including lack of consideration, inequality of bargaining power, failure to meet statutory standards, and obsolescence. 127 128  Part II Legal Issues in Hiring and During the Course of Employment Introduction Every employment relationship is based on a contract, regardless of whether the contract is oral or written. Under the common law, three things are necessary to create a contract: consideration an offer, acceptance of the offer, and consideration (something of value given or prom- a mutual exchange of prom- ised in exchange). A binding legal employment contract is created, therefore, wherever ises required, along with there is a job offer, an acceptance of that offer (noted by a clear “meeting of the minds” an offer and an acceptance, of the contracting parties), and the promise to exchange wages for work performed (the to create an enforceable consideration). An oral contract that contains these elements is just as binding as a writ- contract; for example, in ten one. an employment contract, The employment relationship is, however, a special one within the law of contract, with consideration is a promise of payment in exchange for a its own history and particular legal issues. This chapter, therefore, both outlines the basic promise to perform the work elements of all contracts and explores some of the legal issues that are particular to employ- ment contracts. Written Employment Contracts Advantages of a Written Employment Contract Despite the validity of an oral employment contract, a well-drafted written contract offers several significant benefits, which are set out below. Reduces Risk of Misunderstandings By specifying the rights and obligations of both the employer and the employee, a written contract reduces the risk of misunderstandings that could lead to disputes and lawsuits later. It reflects a common understanding of the terms and conditions of employment that can always be referenced, even if the passage of time or staff changes make it difficult to recall the actual agreement made by the parties. Addresses Potentially Contentious Issues Early A written contract encourages the parties to deal with potentially contentious issues early in their relationship, when they are getting along. Furthermore, because both the employer and the employee have a strong incentive to reach an agreement that is mutually satisfac- tory, contentious issues are likely to be dealt with in a constructive manner. Reduces Uncertainty If a dispute arises and the parties take the matter to court, a well-drafted employment con- tract provides the court with a clear record of the terms and conditions of employment. In contrast, the terms of an oral agreement are those that the court finds the parties agreed to and those that are implied by law. Where the matter in dispute relates to terms agreed to and an oral agreement was made, both parties will have the problem of convincing the court that, on a balance of probabilities, their version is the truest. For example, the em- ployer and employee may, after the start of employment, disagree on how sales commis- sions are to be calculated. If the formula is not in writing, the parties may end up in court trying to prove that their own recollection of the agreement is more accurate than that of the other party.  Chapter 5 The Employment Contract   129 Implied Terms Where the issue in dispute was not addressed in an oral or written contract, a court will sometimes import implied terms into the agreement. This means that the court considers implied terms what terms the parties would likely have agreed on had they put their minds to the issue; default or mandatory rules it then deems those terms to be part of the contract. Because of the special nature of the that the courts assume are employment relationship, in contrast to other contracts, the courts have also developed a part of an employment set of standard implied terms that reflect what they believe the employer’s and employee’s agreement, even if they have rights and obligations ought to be, unless expressly stated otherwise in the agreement. These not been expressly included in the employment contract implied terms, long established at common law, are one of the reasons that employment contracts are often relatively short: the courts have already established some of the basic terms, so the employer and employee need not set those terms down in writing, unless they want to change them. One of the most important implied obligations of an employer is reasonable notice of termination. This means that, in the absence of an express term relating to the contract’s duration and termination notice (i.e., a termination clause), the courts will find that the contract implies an obligation of the employer to provide the employee with reasonable notice of termination in the absence of serious misconduct (referred to in this book as the “common law notice period”). Employers can instead give the employee pay in lieu of notice, which is an amount equal to the wages and benefits the employee would have received during the notice period (see Chapter 14). What constitutes “reasonable” notice depends on the particular facts of each case. Conversely, as the Supreme Court of Canada reconfirmed in the 2008 decision RBC Dominion Securities Inc v Merrill Lynch Canada Inc, employees have an implied duty to provide reasonable notice of resignation and can be liable for damages suffered if such notice is not given. Employers also have an implied duty to provide the employee with the tools and training necessary to do the job properly and to provide a safe workplace (including a workplace free from harassment—see Chapter 7). The most important implied term for an employee is the duty of good faith—that is, the duty to advance the interests of the employer while employed. An employee cannot, for ex- ample, compete with the employer during the term of the employment relationship or make improper use of the employer’s confidential information. Employees also have a duty to do their work competently and honestly, which includes punctuality. Many of these implied duties are part of the law on just cause for dismissal. Chapters 13 and 14 explore these terms in the context of dismissal. How Formal Should a Written Contract Be? When a job is a senior position or when special issues are involved, the parties may want a written contract that is formal and comprehensive. For example, in the high-tech sec- tor, it may be important to address confidentiality, non-solicitation, and non-competition obligations. However, for most employment relationships, the written contract can be more basic. It often consists of a letter from the employer offering the employee a job and setting out the key terms and conditions, such as salary, benefits, start date, title, and job duties. Another essential element is the termination clause, since this can prevent costly litigation regard- litigation ing reasonable notice. The offer letter may also specifically refer to the employer’s policy legal action 130  Part II Legal Issues in Hiring and During the Course of Employment manual, so that its policies covering such matters as discipline, probationary periods, ab- incorporated by sence, safety, and harassment are incorporated by reference into the employment contract, reference and thereby become part of the terms of employment. Incorporating the manual into the when a second document contract can be important in wrongful dismissal cases, since violations of the manual would is included as part of a support the employer’s argument that it had just cause to fire the employee (but see the first document because it ASM Corrosion Control case below, under “Lack of Consideration,” about the need to notify is listed or named within employees of changes to the manual). the first document Common Contractual Terms In addition to being clearly drafted, written employment contracts should be customized to reflect the issues that are important to both the employer and the employee. Employers should be cautious of the temptation to use a single, standard contract for all employees. One size does not always fit all circumstances. All employment contracts rest on the same general principles; however, the level of for- mality and detail varies. As noted above, for most employment relationships a letter of hire that sets out key terms and expressly incorporates the employer’s policy manual may be sufficient. Key terms include the names of the parties, the date the job begins, a job title and description, the duration of the contract (if it is for a fixed term), the compensation offered, and the termination clause. For managerial positions, positions that involve a high degree of skill, and positions that require specific contractual terms (such as a non-competition clause), a formal contract is advisable. Executives and skilled employees may require the inclusion of details about bonuses, pension arrangements, stock options, and specifically perk negotiated perks. short for “perquisite,” a bonus The written contract provides both parties with the opportunity to set out their expecta- or benefit, particularly one tions, thereby reducing the risk of misunderstandings that can later lead to disputes and owed to a job incumbent litigation. The employer may want to maintain sufficient flexibility so that, as circumstances change, it can make adjustments without risking a claim from the employee that it has fundamentally breached the contract. For example, where hours of work are included, the contract may stipulate that hours of work may vary from time to time. A sample indefinite-term contract is set out in Appendix A to this text, and a sample fixed-term contract is set out in Appendix B. An employment contract may include any terms that are not prohibited by law. The fol- lowing are some of the more important topics that may be addressed in a written contract, along with suggestions for minimizing the risk of legal problems associated with them. Job Description Setting out the position and broad job duties clarifies the expectations of both parties and reduces the potential for misunderstandings. However, in the absence of contractual lan- guage that allows the employer to modify responsibilities, the employee is entitled to refuse to perform duties that fall outside the original agreement. For example, in Damaso v PSI Peripheral Solutions Inc, the plaintiff held the position of field service and computer technician from 1999 to 2011. The duties associated with this position were recorded in writing when Damaso was hired and remained unchanged for a decade. However, during his tenth year of employment, the employer unilaterally added duties associated with the role of IT administrator. Damaso was offered no additional  Chapter 5 The Employment Contract   131 compensation, notwithstanding the considerably greater responsibilities associated with the new IT administrator duties. When Damaso objected to the changes and asked for a pay increase, the employer hired an independent contractor to perform the IT administrator duties, changed pass- words required for Damaso to perform the balance of his duties, and provided him with 12 months’ working notice of dismissal. Shortly thereafter Damaso sued his employer, claiming that he had been constructively dismissed. The Ontario Superior Court agreed, finding that the employer had imposed an over- whelming volume of new duties and prevented Damaso from effectively performing the balance of his duties by removing his access to the server. The Court awarded Damaso 12 months’ compensation in lieu of notice, finding that it was not reasonable to expect him to continue performing his duties during the working notice period in the circum- stances created by the employer. (For more information about constructive dismissal, see Chapters 11 and 14.) Issues arising from an employer-modified job description can be lessened (but probably not eliminated entirely) with language in the contract that expressly allows the employer to change the duties of the job. For example, the contract could state that the employer may assign “any and all other duties as may be required from time to time.” Remuneration The terms of an employment contract must at least match statutory minimum require- ments. For example, a contract cannot contain a term that allows for overtime premium pay that is less than that required under provincial employment standards legislation. If it does, the term is null and void. (See Chapter 6 for a discussion of the requirements of employ- ment standards legislation.) There is no obligation to provide for future pay increases in the contract. The contract may be silent on this point or simply state that the employee’s remuneration may increase or decrease in the future, based on performance evaluations. Contracts for executives may also contain details of bonus structures and stock options. Term An employment contract that covers a fixed period or a particular task must state the term or task. Otherwise, the contract is considered to cover an indefinite period. Hiring for a fixed term or task (if the task is well defined and of limited duration) relieves the employer of the obligation to provide reasonable notice of termination, because at the end of the term or task, employment simply ends. Creating a fixed-term or fixed-task contract limits the employer’s liability and provides both parties with an opportunity to evaluate their working relationship at or prior to the end of the fixed term or task. However, there are various cautions to consider when creating and administering fixed- term contracts. Some are considered here. First, where the contract is, in substance, an in- definite one and the employer uses a series of rolling, fixed-term contracts simply to avoid statutory and common law termination requirements, courts are less likely to enforce the term. This was illustrated in the case of Ceccol v Ontario Gymnastic Federation, in which the employer provided a series of fixed-term, one-year contracts. The Ontario Court of Appeal had little difficulty ruling the employment was indefinite and awarded common law notice for 17 years instead of the last one-year contract. It is prudent for the parties to negotiate a 132  Part II Legal Issues in Hiring and During the Course of Employment fair termination provision in an indefinite-term contract rather than attempt to frame the employment relationship with a series of fixed terms. The second caution with fixed-term or fixed-task contracts is that monitoring and renew- ing them can pose an administrative challenge for employers, especially if the contracts expire at different times. If a renewal date is missed but the contract work nevertheless con- tinues, a fixed-term contract becomes a contract for an indefinite term pursuant to employ- ment standards legislation, which then requires an employer to provide the employee with common law notice, pay in lieu, or a combination of notice and pay in lieu. The contract may be written to address this matter by providing for automatic renewal. In this case, if the employer intends to terminate or alter the relationship at the end of the contract, it must do so in a timely manner, because the contract will otherwise be renewed automatically for the same fixed term. Finally, employees hired on a fixed-term or fixed-task basis generally are required to be employed for the entire term or task. If an employer terminates an employee before the end of that period, damages are based on the remainder of the term, which might prove more costly to an employer than pay in lieu of common law notice for an indefinite-term employee. For example, if the employee’s contract is for 12 months and the employer termi- nates the contract after only 2 months, the employer may be liable for the remainder of the contract (10 months) rather than for minimum statutory notice or even the common law notice equivalent for a 2-month employee. These issues can be addressed by including a termination clause in the fixed-term con- tract stating that either party is entitled to terminate the contract by giving the other party two (or three or four) weeks’ written notice. Termination The amount of notice due to an employee on termination (without cause) is typically the most contentious issue in the employment contract (see Chapter 14). However, the bene- fits of dealing with the thorny issue up front, while the relationship between the parties is positive, are significant. Otherwise, the common law presumption of “reasonable notice” applies, and such notice is often more generous and less predictable than that provided for in most employment contracts. To understand matters related to the enforceability of the termination clause, the parties should review their obligations regarding written contracts (discussed under the heading “Enforceability and Interpretation of Written Contracts,” below), especially the requirement to meet or exceed the statutory minimum notice requirements. As illustrated by the deci- sion in Stevens v Sifton Properties Ltd, termination clauses that fail to meet the statutory minimum standards in every aspect and at any point in the employment relationship are likely to be found to be invalid. In addition, the termination clause should be clearly expressed because clear language is required to rebut the common law presumption that an employee is entitled to reasonable notice. Furthermore, the termination clause should be specifically brought to the employee’s atten- tion, and both parties should sign off on it before the employment relationship commences. This advice applies whether the termination clause is found in a formal written contract, a letter of hire, or the employer’s policy manual that is incorporated into the employment agreement. Christensen v Family Counselling Centre of Sault Ste Marie and District shows the importance of clear language expressing the agreement of the parties when rebutting the common law presumption that an employee is entitled to reasonable notice.  Chapter 5 The Employment Contract   133 Termination Provisions Insufficiently Clear to Rebut Common Law Presumption CASE IN Christensen v Family Counselling Centre of Sault Ste Marie and District, 2001 CanLII POINT 4698 (ONCA) Facts Christensen had worked as a therapist for the employer counselling centre for seven years when her employment was terminated because of funding cuts. On termination, she received ten weeks’ pay. Her employment contract was the initial letter of offer, which did not address termination, except as it related to the probationary period. The contract referred to the policy manual, which was not sent with the letter of offer but which the employee received during her first week of work. The termina- tion provisions in the manual were never explained to her. The trial judge found that the termination clauses were capable of at least four interpretations, and the Court applied the interpretation most favourable to the employee under the contra proferentem rule. contra proferentem Relevant Issue the doctrine of interpret- Whether the termination provisions limited Christensen’s common law entitlement to reasonable ing ambiguous contract notice or pay in lieu. language against the interests of the party that Decision drafted the language The Ontario Court of Appeal held that the key factor was whether the provision was sufficiently clear to rebut the common law presumption of reasonable notice. To rebut this presumption, the employer should have expressed its intention clearly and brought the clause to Christensen’s attention when she was hired. An ambiguous notice provision cannot rebut the common law presumption in favour of reasonable notice. The Court awarded Christensen eight months’ pay in lieu of reasonable notice of termination. Termination Clauses and the Duty to Mitigate The duty to mitigate refers to the obligation placed on a dismissed employee to look for a job that is comparable to the one from which the employee has been dismissed during the common law reasonable notice period. If the dismissed employee is successful, earn- ings from that new job will reduce any wrongful dismissal damages owed by the employer. (See Chapter 14 under the heading “The Duty to Mitigate.”) This duty clearly applies where there is no enforceable termination provision in the employment contract and the period of reasonable notice is established as an implied term of the contract under the common law. However, until recently, case law has been mixed about whether the duty to mitigate applies where an employment contract specifically sets out the length of termination notice (or a specific amount of termination pay) and is silent on the duty to mitigate. However, in the 2012 case of Bowes v Goss Power Products Ltd, the Ontario Court of Appeal con- firmed unequivocally that where an employment contract contains a stipulated entitlement on termination without cause and is silent on the duty to mitigate, the employee will not be required to mitigate. In the Court’s view, in the context of the employment relationship, deciding otherwise would be unfair. As Winkler CJ notes: It is worthy of emphasis that, in most cases, employment agreements are drafted primarily, if not exclusively, by the employer. In my view, there is nothing unfair about requiring employers to be explicit if they intend to require an employee to mitigate what would otherwise be fixed or liquidated damages. In fact, what is unfair is for an employer to agree upon a fixed amount of damages, and then, at the point of dismissal, inform the employee that future earnings will be deducted from the fixed amount. (at para 55) 134  Part II Legal Issues in Hiring and During the Course of Employment BC courts have affirmed that the rule in Bowes is equally well settled in the law of BC. In the 2014 decision Maxwell v British Columbia, the Court of Appeal again affirmed this, and went on to say: Where a contract provides for the effect of termination, generally the provisions of the contract pre- vail. Recourse to the common law is not required. In some circumstances, the contract may require mitigation, but where it does not the innocent party is entitled to what was agreed … In the present case, the contract specifically provides that if the respondent was terminated without cause, “the College shall provide an all-inclusive payment in lieu of notice.” It continues to specify the components of that payment. I see no basis on which it could be contended that the respondent was obliged to mitigate and that her failure to do so would relieve the appellants from their contractual obligations. (at paras 27 and 28) To avoid the result in Bowes, Maxwell, and similar cases, an employer must make sure that mitigate its contractual termination provisions expressly establish a duty to mitigate. This applies to make reasonable efforts to whether the employment contract is for a fixed term or an indefinite period (Thompson & reduce damage or harm; the Lambert, 2013). However, it is important to note that an employee’s minimum entitlement law imposes a duty to miti- to pay in lieu of termination notice under employment standards legislation cannot be gate on anyone who suffers a made subject to mitigation in a contract—those amounts are generally payable whether or loss, even if someone else is not the dismissed employee mitigates. at fault; in employment law, It is also important to note the absence of any duty to mitigate damages when a fixed- mitigation means seeking term contract is terminated early is exclusive to employees—the rule is different for in- a new job upon dismissal dependent contractors (see Chapter 2). For example, in Monterosso v Metro Freightliner Hamilton Inc, the Ontario Court of Appeal considered circumstances where an independent contractor was retained pursuant to a 72-month fixed-term arrangement but was termin- ated with 65 months remaining in the term. The trial judge awarded damages equal to the full balance of the outstanding term on the basis that the independent contractor had no duty to mitigate the damages. The Court of Appeal disagreed, ruling that true independent contractors, unlike employees, are obligated to mitigate damages resulting from a breach of contract. Monterosso therefore establishes that, in the absence of clear contractual terms specifying otherwise, independent contractors on fixed-term arrangements are subject to the duty to mitigate their damages for breach of contract. Other Terms Related to the Termination Clause In addition to specifying the termination notice owed to the employee on dismissal without cause—and the duty to mitigate—the parties may decide to include other terms related to termination. For example, the employer may want to include a definition of “just cause” to establish the conduct that would justify dismissal without notice or pay in lieu of notice.1 The termination clause may also set out the method by which termination pay is to be paid. For example, it could provide for payment by lump sum, salary continuance, or a com- bination of the two. The employer may also want to stipulate that salary continuance ends when the employee finds a comparable job, also known as “bridging.” Finally, the parties may want to address the issue of the employee’s obligation to provide advance notice of resignation. This is especially important for an employer if the employee has specialized skills or holds a key position. Reasonable notice of resignation depends on the difficulty involved in finding a suitable replacement for the departing employee and 1 An example of a generic just cause clause would read something like “Notwithstanding any other para- graph of this Agreement, the Employer may end your employment at any time for just cause, without notice or pay in lieu of notice.”  Chapter 5 The Employment Contract   135 does not directly equate with the length of notice that an employer may be required to pro- vide to an employee. In Torcana Valve Services Inc v Anderson, the Alberta Court of Queen’s Bench determined that all employees are required to give reasonable notice. In the absence of special circumstances, two weeks’ notice in the case of an ordinary employee and four weeks’ notice in the case of a more senior one would be generally appropriate [as a common law standard]. (at para 79) Probationary Period Employers often want a period at the beginning of the employment relationship during which they may dismiss an employee without being obliged to provide reasonable notice under the common law. This gives the employer a window of time in which to evaluate the new employee’s suitability for the position. Under the common law, however, a probation- ary period is not an implied term of an employment contract. Therefore, to incorporate a probationary period, the contract must expressly provide for it in writing. It is somewhat unclear under the case law whether an employee may be summarily dis- missed (i.e., dismissed without notice) during the probationary period at the employer’s sole discretion, or whether the employer must provide objective reasons for its decision to avoid paying termination pay. The tests to justify dismissing an employee during probation have been set forth by the Alberta Court of Appeal in Rocky Credit Union Ltd v Higginson. To justify the dismissal of an employee on probation, the employer need only establish that (1) the employee had been given a reasonable chance to show they were suitable for the position, based on standards the employer set out upon hiring; (2) the employer had found the employee to be unsuit- able; and (3) the employer’s decision was based on an honest, fair and reasonable assessment of the suitability of the employee, including not only job skills and performance but character, judgment, compatibility, reliability, and future with the com- pany. (at para 6) In cases of a probationary review, the Court added, it would not require the employer to establish actual cause. However, many contracts include a contractual provision concern- ing the probationary period that expressly allows the employer to terminate the employee at any time and for any reason within the first three months of employment without having to provide any notice or pay in lieu of notice (Israel, 2 April 2003). In the absence of such a clause, however, employers likely must be able to defend the dismissal by demonstrating that the employee was not suitable—and that the employee was given in advance some sense of what suitability entailed. This is apparent in the 2012 case Geller v Sable Resources Ltd. In this case, an employer dismissed a new employee with- out notice. The employee, an apprentice heavy-duty mechanic, balked when asked to work alone at a mine during his time off, without the supervision and on-the-job training he had been told to expect from a senior mechanic. The employer dismissed him without cause and justified the dismissal by saying he was on probation. The BC Supreme Court applied the test in Higginson and determined that the dismissal was wrongful since the dismissal was based on expectations that were contrary to what the employer had told the mechanic at the time of his hiring (the promised training and supervision by a senior mechanic) and contrary to the contract (asking him to work during his contractual time off). As this case demonstrates, dismissal during probation need not be for cause, but it must not run con- trary to the expectations the employer gave the employee at the outset. 136  Part II Legal Issues in Hiring and During the Course of Employment Probationary periods are typically three to six months, depending on the nature of the position. The assessment period is usually shorter for people employed to perform simple and repetitive tasks than it is for people who are employed in more demanding and varied positions (Echlin & Thomlinson, 2011, at 64). Under Alberta’s Employment Standards Code (s 55(2)(b)) and BC’s Employment Standards Act (s 63(1)), employees who have been employed for three months or less are not entitled to statutory notice of termination or compensation. However, statutory notice or compensation is required after three months’ service. Therefore, where the probationary period under a con- tract exceeds three months, the employer must give notice or compensation to an employee who is dismissed after three months unless the dismissal occurs for reasons exempted from the statutory requirements. For example, if the contract calls for a probationary period of six months and the employee is terminated after four months because the employer is dissatis- fied with the employee’s performance, the employer must provide one week’s wages or notice of termination, in accordance with section 56(a) of the Alberta Act and section 63(1) of the BC Act. (In Alberta, it increases to two weeks after two or more years [s 58(1)(b)]. In BC, the required compensation for length of service [or notice instead of compensation] increases to two weeks after one year of consecutive employment, then three weeks after three years, then one additional week per year up to eight weeks [s 63(2)]. See Chapter 6 for more on these acts and Chapter 14 for a review of the statutory notice and compensation rules.) This notice is necessary even though the termination occurs during the contractual pro- bationary period and no reasonable notice is required under the common law. It is essen- tial that the contractual provisions regarding notice of termination during any probationary period longer than three months take this statutory requirement into account; otherwise, the entire provision may be found unenforceable. A 2014 BC case illustrates this risk. In Miller v Convergys CMG Canada Limited Partnership, an employee of three years was promoted. His new contract’s termination clause contained a typical probationary clause—apparently included by mistake, due to the careless use of a template for new employees—that said he could be dismissed during probation without notice or pay in lieu. It also specified the notice he was entitled to, if dismissed outside the probation period, setting that amount at the min- imum standard in the Employment Standards Act. The employer dismissed him some time later and offered pay in lieu according to the contract’s terms. The employee sued for com- mon law notice and argued that all of the termination provisions were invalid, since the pro- bationary clause violated the Act: as an employee of three years at the time he started the new contract, the probationary “dismissal with no notice” rule violated section 63 of the Act. His argument might have succeeded, but the contract also contained a severability clause, which stated that if any one clause was unenforceable, that clause would be severed and the remainder of the contract would be valid (see the discussion under the heading “Severability Clause,” below). The Court therefore upheld the employer’s offered severance package, and the employee lost. The case is a good illustration of the importance of careful attention to employment contracts—as well as the value of a severability provision. (For more on the unenforceability of clauses that contradict basic employment standards legislation, see below.) Relocation If a transfer to another city or region is a potential issue, the parties should address the matter in the contract. Otherwise, if the employer decides to transfer the employee, they could become embroiled in an unnecessary dispute about whether the right to relocate is an implied term of the contract. An employee could argue, for example, that the r­ elocation ­constitutes a fundamental breach of contract and therefore amounts to constructive  Chapter 5 The Employment Contract   137 ­ ismissal. (For more information about constructive dismissal, see Chapters 11 and 14.) d However, if having the discretion to transfer the prospective employee is not significant to the employer but is a serious concern for the employee, the contract can expressly provide that there is no employer right to require relocation (Echlin & Thomlinson, 2011, at 65). Benefits Employment contracts can provide the details of benefit entitlements, including medical and dental benefits, vacation, and use of a company car, laptop computer, or other mobile devices. Some benefit entitlements may not come into effect until several months after work begins. If this is the case, the delay should be set out in the contract so that the employee is not caught unaware. The parties may also choose to establish how benefits will be dealt with in the event of dismissal or resignation. Restrictive Covenants Restrictive covenants are clauses that protect an employer’s business interests by restricting what an employee can do during, and especially after, employment regarding such matters as confidential information and customer lists. The three main types of restrictive covenants are set out below (see also Chapter 2): 1. Non-disclosure clauses. Also called confidentiality clauses, these prevent a departing employee from using and disclosing confidential information related to the em- ployer after employment ends. 2. Non-solicitation clauses. If enforceable, these clauses prevent a departing employee from soliciting the employer’s customers, clients, or possibly employees. For ex- ample, an employee may agree that they will not initiate contact with their employ- er’s customers for one year after employment ends. 3. Non-competition clauses. If enforceable, these clauses prevent a departing employee from competing with the employer. They are typically drafted to restrict competi- tion for a specific time within a specific geographic area. For example, an employee could agree that they will not start up a business that competes with the employer’s business in the city where the employee has worked for the employer for 12 months after employment ends. Non-disclosure clauses that simply limit the employee’s use of the employer’s confidential information are usually enforceable. The employer should clarify with employees what in- formation it considers confidential and consistently enforce those guidelines. Confidential information includes such things as customer lists and information, intellectual property, and marketing plans. FYI New Frontiers—Who Owns the Customer Contacts on Social Media? It is a long-standing principle in employment law that an employee cannot print a customer list, take it home (or email it to themself ), and then use it to compete against their former employer (Pugen, 2013). But what if the competitive information is on social media sites such as LinkedIn? In Eagle Pro- fessional Resources Inc v MacMullin, the Ontario Court of Appeal decided that three employees who (Continued on next page.) 138  Part II Legal Issues in Hiring and During the Course of Employment allegedly contacted their former employer’s customers did not breach the non-solicitation provision in their employment contracts. The employees successfully argued that they relied only on publicly available information taken from social media sites such as LinkedIn, and the employer did not have a proprietary interest over the content (Stam, 2013). Employees, especially those in sales, are often encouraged to use social media sites (X, Facebook, Instagram, TikTok, LinkedIn, etc.) to connect with customers and prospective customers. Given the ease with which former employees can now reconnect with contacts made with or for an employer online, courts are having to make “awkward distinctions … between information that could be memorized or in the public domain and information committed to writing or electronic storage” (Kempf, 2013). To try to protect its interests in this unsettled area of the law, an employer should consider doing the following: Ensure its databases and its presence on social media sites are maintained on its premises by employees who use only the employer’s equipment and receive compensation for doing so (as per their job descriptions). Set clear privacy and confidentiality policy guidelines regarding its social media networking infor- mation that is available to everyone who has access to this information. Make all employees aware of its proprietary interest in all contact management software, includ- ing social media. Keep its social media groups and networking separate from employees’ personal social media pro- files or groups (Pugen, 2013). Courts are more suspicious of non-solicitation and non-competition clauses because they affect a former employee’s ability to earn a living in that person’s area of expertise or in their usual geographic location. Courts seek evidence from disputing parties to demonstrate that the restrictions only go as far as reasonably necessary to protect the legitimate business interests of the employer. In the case of a dispute over a non-solicitation clause, a court will examine the clause carefully to ensure that it is reasonable in the circumstances. The onus is on the employer to show that the clause is reasonable in the circumstances because, for ex- ample, the employee’s job involved significant contact with and knowledge of customers and suppliers and that its business would be impacted by a breach of the non-solicitation clause. Understanding that a company’s stock-in-trade may not be a fleet of trucks, a herd of cattle, or a unique set of production machinery, but rather may be business information and knowledge, the protection of that information from competitors in the same field could rely heavily on the enforceability of restrictive covenants. Freight forwarding and logisti- cal services in Calgary and Western Canada were at the heart of a non-solicitation and non-competition dispute in Unified Freight Services v Therriault. Unified Freight was a bro- ker that located transport companies to move commodities from one location to another. Michael Therriault was a company supervisor and a key employee known to be considering alternative employment options. He was observed on several occasions removing client in- formation from the office in violation of express provisions in the company policy manual. The owner of Unified Freight sought advice from a lawyer and from the Calgary Police Service Economic Crimes Unit. He then terminated Therriault, advising him that he must return all documents removed from the office or deal with the police. The owner accom- panied Therriault to his residence in Calgary, where confidential company records, includ- ing a 150-page master client list, were retrieved from four different locations: the garage, a storage room, a home office, and a company vehicle. Despite having signed non-solicitation and non-competition clauses when he was ter- minated, Therriault wrote to several clients just ten days later, eventually advising them  Chapter 5 The Employment Contract   139 how to get in touch with him. The Alberta Court of Queen’s Bench determined that as a key employee Therriault was a fiduciary, and that Unified Freight was left in a particu- larly vulnerable position after Therriault’s removal of its proprietary client information (see the discussion under the heading “Implied Duty to Maintain Confidentiality” below). The breadth and extent of the infraction was seen as confirmation that Therriault had breached his contractual obligations repeatedly and deliberately, with the motive of expediting a later return to the marketplace either on his own or with a competing employer. Accordingly, the Court found for the plaintiff and awarded Unified Freight $96,711.75 for its loss. Courts take a stringent approach with non-competition clauses because they actually pre- vent former employees from working in a particular area for a fixed time. These clauses are viewed as a restraint of trade, and they are presumed invalid unless the employer shows that: the non-competition clause is necessary to protect the employer’s legitimate business interests, the non-competition clause covers a reasonable length of time and geographic area, and a non-solicitation clause would not adequately protect the employer’s legitimate interests in the circumstances (Israel, 2004). When allegations of a breach of a confidentiality clause or non-solicitation agreement are made, it is not uncommon for employers to request an interim injunction. However, employers should not expect the injunction to provide sweeping restrictions on the activ- ities of the former employees. Courts have ruled that injunctions should not be unneces- sarily broad—otherwise, they may have the same effect as a non-competition clause. Two relatively recent, successful interim injunction cases in BC and Alberta, respectively, are Phoenix Restorations Ltd v Drisdelle and Peters & Co Limited v Ward. In each case, the for- mer employees had emailed themselves and photocopied client lists and other information before leaving their employment in hopes of using that information in the new workplace. In a more recent BC case, Quick Pass Master Tutorial School Ltd v Zhao, the BC Supreme Court clarified (citing Phoenix): The Confidential Information Clause is not a restrictive covenant. Rather, it is “intended to protect the right of a business to keep confidential the information it hopes will help it to compete, so the usual relatively low threshold applies to it.” This means that Quick Pass need only prove that its claim with respect to this clause is not frivolous or vexatious and the court need not engage in an extensive review of the merits of the claim. (at para 30) The key to creating enforceable restrictive covenants is to be clear and to go no further than is necessary to protect the employer’s legitimate business interests. For example, in industries where state-of-the-art information changes rapidly, a non-competition clause that extends beyond 12 months is probably unenforceable. There must also be a reasonable link between the employee’s expertise or position and the scope of the clause. It is inadvis- able to use a standard clause for all employees. In terms of what counts as “solicitation,” the Alberta Court of Queen’s Bench, in a case called Jetco Heavy Duty Lighting v Fonteyne, concluded that an employee must actively engage in some form of communication intended to encourage the former client to make a business change. The Court provided the following examples: sending letters to former clients after resigning, “inviting them to transfer their account to him at World Wide [his new employer]” (Anderson, Smyth & Kelly Customs Brokers Ltd v World Wide Customs Brokers Ltd at para 26); 140  Part II Legal Issues in Hiring and During the Course of Employment sending letters to former clients and then following up on those letters “by telling customers where he could be found—at Titan [his new employer]” (Unified Freight Services Ltd at para 64); and sending out 400 personalized letters, mostly to former clients. The letter opened with “I am pleased to announce that I have left KJA” and also included “If I can be of any assistance, please call.” Some of these letters were also followed up with a phone call (KJA Consultants Inc v Soberman at para 47). Another consideration is whether the duration and scope of the clause is the industry norm. Clauses that are more restrictive than those typical of the industry are less likely to be enforced by the courts. Mason v Chem-Trend Limited Partnership provides an example of a court weighing both the duration and scope of the non-competition clause in determining reasonableness. “Less Is More” in Non-Competition Clauses CASE IN Mason v Chem-Trend Limited Partnership, 2010 ONSC 4119, 2011 ONCA 344 POINT Facts Mason was a salesperson at a chemical products manufacturer. After 17 years of service he was dis- missed, allegedly for cause. His employment contract contained the following non-competition clause that prohibited him from competing with the employer for one year after termination—with no geo- graphic restriction: I agree that if my employment is terminated for any reason by me or by the Company, I will not, for a period of one year following the termination, directly or indirectly, for my own account or as an employee or agent of any business entity, engage in any business or activity in competition with the Company by providing services or products to, or solicit- ing business from, any business entity which was a customer of the Company during the period in which I was an employee of the Company, or take any action that will cause the termination of the business relationship between the Company and any customer, or solicit for employment any person employed by the Company (at para 17). Mason applied to the Court for a declaration that the non-competition clause was unenforceable. The application judge upheld the restriction, finding that the unlimited geographic scope was reason- able: the employer’s business was global, as a salesperson Mason had extensive access to confidential customer information, and one year was a relatively short period of time for non-competition clauses within the industry. The Court also noted that the clause was clearly worded and understood by the employee when he signed it. Mason appealed the Court’s decision. Issue Whether the non-competition clause was enforceable. Decision The Court of Appeal found that although the non-competition clause was clearly written and the one-year limit was well within the industry norm for salespeople, the clause was overly broad in other respects. Completely prohibiting Mason from competing for one year anywhere in the world consti- tuted an unreasonable geographic scope. Furthermore, preventing him from doing business with “any business entity which was a customer of the Company” was an unworkable restriction. Mason had no way of knowing every customer the employer had had during his 17-year tenure. Finally, the employer’s legitimate interest in its trade secrets and other confidential information was already pro- tected by the non-disclosure clauses within the agreement.  Chapter 5 The Employment Contract   141 As well, a court is more likely to find the restrictive covenant valid if the employee had a genuine opportunity to negotiate its terms, including the opportunity to seek independent legal advice. Finally, the restrictive covenant’s wording must not be ambiguous. In Shafron v KRG Insurance Brokers (Western) Inc, the restrictive covenant prohibited the defendant insurance broker from competing with the employer within the “Metropolitan City of Vancouver” for a period of three years after leaving its employ. The trial judge refused to enforce the agreement, finding that the term “Metropolitan City of Vancouver” was ambiguous because there was no such legal municipal entity. The BC Court of Appeal agreed that the term was ambiguous but decided that it could be made enforceable if the Court notionally severed part of that term from the agreement and read down the geographic scope so that it would be reasonable. On appeal, the Supreme Court of Canada overturned that decision. Noting the potential power imbalance between employees and employers, it reasoned that employ- ers should not be allowed to negotiate overly broad non-competition clauses and then rely on the courts to read them down to the broadest scope that they consider reasonable. The Court concluded that restrictive covenants should be strictly construed; an ambiguous covenant is, by definition, unreasonable and unenforceable. Given the long-standing relative reluctance of courts to enforce non-competition clauses in employment contracts, employers can mitigate their exposure by using non-solicitation clauses. Not only are non-solicitation clauses more likely to be enforced, but they also enable former employees to look for work in the same industry as part of mitigating their losses (Levitt, 2013). Employers can also use customized contractual language that is detailed, spe- cific, reasonable, and unambiguous. It is worth noting that the Ontario government passed legislation in 2021 that prohibits non-competition agreements. Employers in that province are no longer allowed to impose non-compete clauses that prevent people from exploring other work opportunities that are in competition with the employer’s business after the employment relationship between the employee and employer ends. Employers are still able to protect their intellectual property and confidential informa- tion through narrower clauses, and non-compete clauses are allowed in some cases where a business is sold. Further, the legislation does not prohibit the restriction against competitive behaviour during the course of employment, nor does it ban clauses that block ex-­employees from soliciting their former employer’s clients (often referred to as non-­solicitation clauses or agreements). Such legislation does not currently exist in British Columbia or Alberta. Ownership of Intellectual Property Intellectual property, such as inventions, patents, and copyright, is important for many com- panies, including those that develop electronics or computer software. An ownership clause deals with the ownership of intellectual property or inventions developed by the employee in the course of employment. It is useful to establish ownership of intellectual property early in the employment relationship to avoid potentially bitter disputes later if the employee develops a commercially viable product. The ownership clause typically provides that intel- lectual property that the employee invents or develops during the normal course of employ- ment belongs to the employer (see Seanix Technology Inc v Ircha in the Case in Point). 142  Part II Legal Issues in Hiring and During the Course of Employment Employer Rightful Owner of Invention Created on the Job CASE IN Seanix Technology Inc v Ircha, 1998 CanLII 6772 (BCSC) POINT Facts Ircha, a mechanical engineer and designer, was employed to design computer cases and to comment on subcontractors’ design work on such cases. While so employed, he invented a “computer case with swing-out motherboard/backplane support.” The employee conceived and developed the basic idea for the invention at home, since he did not have design facilities at work. In early 1996, Ircha showed the design to his employer to demonstrate that he could do design work. In June 1996, he started an application for a patent for the swing-out apparatus in his own name. Over the summer and fall, he negotiated with Seanix a better salary and even a joint venture with his employer in the production of new cases based on his design. However, Ircha was dissatisfied with the results of those negotiations, and he left Seanix’s employment in November 1996. By August of the following year, the patent office was demanding further particulars, but the employer took the position that the patent belonged to it. The parties went to court on an application for summary judgment in the BC Supreme Court to resolve the matter. Relevant Issue Whether patent rights to something invented by an employee while employed belong to the em- ployee or the employer after the employment is terminated. Decision The Court ruled that the employer company was the rightful owner of the invention and was entitled to patent rights in it. The mere fact that an invention occurs while an employee is an employee is not what gives the employer a prima facie right to the intellectual property: it is that the invention is the product of the very work the employee is paid to do. The judge repeated obiter dicta from an earlier BC Supreme Court decision (Spiroll Corp Ltd v Putti), subsequently adopted and applied by the Federal Court of Canada, which said a court must first find what the employee is engaged to do and, if he invents something while performing that function, it belongs to the employer. If he is employed to design, then it would be a “normal incident” of his contract of employment that he should do so and that the result of his ingenuity should belong to his employer. (at 292-93) In factual contrast to the Ircha case, a 2014 BC decision held that a college instructor did own intellectual property he created at his place of employment, since its creation was not specifically part of his duties. In Mejia v LaSalle College International Vancouver Inc, Mejia, the plaintiff, was a computer design and photography instructor who took a photograph in a classroom of a college student participating in a college event. The college used the image in its marketing materials, including its Facebook page. When the college fired the instruc- tor for reasons unrelated to the photograph, he sued for wrongful dismissal and violation of copyright. It was unclear whether the photograph was taken during actual class time, but what decided the case for the Court was that the instructor’s contract specified that he was paid to teach. His duties did not include taking photographs. Citing Ircha, the Court held that in this case the employee had not created intellectual property “in the course of employment.” The instructor won damages, albeit a small amount in this case. Choice of Law A choice-of-law clause specifies the jurisdiction whose laws govern the contract. Often the jurisdiction is obvious. An employment contract between an Alberta-based employer that hires an Alberta-based employee is interpreted according to the laws of Alberta. However,  Chapter 5 The Employment Contract   143 where an Alberta employer hires an employee to work in another province or country or where someone from another jurisdiction is hired to work in Alberta, jurisdiction could be disputed. For this reason, an employment contract should stipulate which jurisdiction’s laws govern its terms. The same applies for BC. In BC, since 2003, an act called the Court Jurisdiction and Proceedings Transfer Act has been in effect. This legislation is an important codification of basic principles relating to choice of law. Section 11(2) lists six major circumstances that a court will consider before deciding whether it or a court outside BC is the appropriate forum for that matter. One consideration in determining which law should govern the contract is costs. A party who becomes involved in a legal dispute in another jurisdiction can incur significant addi- tional litigation costs. On the other hand, where the employment contract has some con- nection with the United States—if, for example, an employee is hired to work in the United States—an Alberta employer may prefer that the contract be governed by US law. This is because, unlike the situation in Canada, most US states do not require employers to provide reasonable notice of termination and instead allow termination at will. However, for a choice-of-law clause to be upheld, there needs to be a reasonable con- nection between the employment contract and the chosen jurisdiction. Where there is no choice-of-law clause, a contract is interpreted according to the law of the jurisdiction that is most closely connected to the employment relationship. Corporate Policies In most circumstances, an employer wants a new employee to be contractually bound by its general policies, which are usually found in an employer’s policy manual. The employer should arrange for a candidate to receive a copy of the manual some time before signing the contract so that they have time to review it. The employee should acknowledge, in writ- ing, that the employee has read the policies and agrees to be governed by them. The best approach is for the written employment contract to include a provision that recites this agreement. If there are certain policies from which the employee wishes to be exempt, and the employer agrees, these should be specified in the written contract. Entire-Agreement Clause This clause states that the signed contract constitutes the entire agreement between the par- ties. Previous conversations, negotiations, and promises that may have been made during the hiring process are not binding on either party. This clause is intended to ensure that in case a dispute arises, a court is restricted to the words of the contract in settling the dispute. Generally, it is presumed that the parties mean what they say in their contracts (Rossman v Canadian Solar Inc). This is doubly so where the parties are sophisticated and represented by counsel in negotiating the agreement. The decision in McNeely v Herbal Magic Inc dem- onstrates the impact an entire-agreement clause can have. Entire-Agreement Clause: Impact on Earlier Representations CASE McNeely v Herbal Magic Inc, 2011 ONSC 4237 IN Facts POINT McNeely had been a senior executive at Herbal Magic, a weight loss management company, for two years when it was purchased by TorQuest. During the sales negotiations, TorQuest’s president told (Continued on next page.) 144  Part II Legal Issues in Hiring and During the Course of Employment McNeely that he was a vital part of the deal and would become the president and CEO of the new firm, Herbal Magic Inc. Considering these oral representations, McNeely invested $2.5 million in the new company’s stock. However, only seven months after he became president and CEO, McNeely’s employ- ment was terminated. Although the employer paid him severance pay according to his employment agreement, McNeely argued that the representations made to him before the purchase created a “collateral agreement” and he was entitled to damages for its breach. The employer countered that the entire-agreement clause in McNeely’s employment contract precluded him from relying on all oral representations made that were not part of the signed contract. Relevant Issue Whether the contract’s entire-agreement clause precluded the employee from claiming damages for oral statements made during pre-contract discussions. Decision The Court held for the employer. The inclusion of an entire-agreement clause showed that the parties intended the contract documents to be the whole of their agreement, notwithstanding any prior oral representations or discussions regarding the subject matter of the agreement. Negotiated by com- mercially sophisticated parties, the entire-agreement clause explicitly covered “all prior agreements, understandings, representations or warranties, negotiations and discussions, whether oral or written.” As a result, the employee could not rely on any statements made during such discussions to claim damages for negligent misrepresentation. Although the employer in McNeely was successful, it is important to note that an e­ ntire-agreement clause does not guarantee that a court will ignore evidence of all previous discussions, especially in the face of serious or fraudulent misrepresentations on the part of the employer. However, it does provide a legal basis for an argument to exclude prior discus- sions from a court’s consideration. Inducement This clause addresses whether the employee’s service with a previous employer is recognized by the contracting employer for severance purposes. If the employee was arguably induced to leave secure employment, the parties should negotiate and expressly state whether those previous years of service will be recognized for the purpose of benefits and calculating ter- mination notice if employment is terminated. Independent Legal Advice This clause states that the employee has had the opportunity to seek independent legal advice before signing the contract. The statement must, of course, be true and include suf- ficient time for an employee to pursue such advice if they wish. An employee who has had an opportunity to obtain independent legal advice will find it difficult to challenge the con- tract later on the basis that they were unaware of its terms or of their legal meaning, as it will likely be assumed that a lawyer fully explained the terms of the contract and explained the law surrounding the particular items in the contract. Such a provision may be less im- portant for senior management employees, who are assumed to have the requisite know- ledge and leverage to protect themselves during negotiations. Offering the opportunity for an employee to seek independent legal advice is particularly important when an employer includes contract provisions that restrict individual rights an employee would otherwise normally have (e.g., a termination clause or a restrictive covenant). Doing so will increase the likelihood such clauses will be enforced (assuming the clauses are reasonably drafted).  Chapter 5 The Employment Contract   145 Severability Clause This clause provides that if a court invalidates part of the employment contract, it will not affect the validity of the remainder of the agreement. An unenforceable clause will sim- ply be severed from the rest of the agreement. A severability clause may be especially im- portant where there is a non-competition provision in the contract, to ensure that if the non-­competition clause is found invalid, the rest of the contract will remain in force. Golden Parachute A unique feature that has evolved in executive employment contracts is the “golden para- chute.” Golden parachutes provide for substantial economic compensation if an executive’s employment is terminated under certain specified circumstances. Typically, the triggering event is a change in the ownership or control of the employer, as a result of which the exec- utive loses their job or is justified in leaving the employer. The rationale behind the golden parachute is to permit the executive to act in the inter- ests of the employer during the transitional period without being distracted by its effect on them personally. Implied Duty to Maintain Confidentiality Even in the absence of restrictive covenants in employment contracts, employers and employees should be aware of numerous contractual relationships that are of a fiduciary nature. This is a legal relationship of trust between the parties that transcends the contrac- tual relationship and imposes a duty of care upon the party in whom trust is reposed. In the context of an employment contract, this trust would be owed by a key employee, for example, or someone entrusted to handle large sums of money or property belonging to the employer, or someone in possession of confidential information. The law imposes a positive duty on employees to respect that confidentiality. Ideally, this relationship of confi- dentiality should be written into the employment contract, but its absence will not prevent employers from suing an employee for breach of trust or breach of confidentiality, where circumstances so warrant, because the fiduciary duty is deemed to be an implied term of the contract. Fiduciary employees and the corresponding obligations of these individuals are explored extensively in Chapter 15. Barton Insurance Brokers Ltd v Irwin illustrates some of the considerations courts use to assess whether a fiduciary duty exists, and it continues to be applied in both BC and Alberta, confirming that former employees who are also fiduciaries may not make use of confidential information to compete with their former employer and may not solicit their former employer’s clients for a reasonable period of time (see, for example, Skycope Technologies Inc v Jia at para 205, but also confirming that the courts should impose fidu- ciary duties cautiously). For example, in GG & HH Inc v 2306084 Alberta Ltd, the Alberta Court of Queen’s Bench expressed such caution as follows: The required undertaking to act in the beneficiary’s best interest need not be express and may be found in the relationship between the parties, in an imposition of responsibility by statute, or under an express agreement to act as trustee of the beneficiary’s interests. It is well established in case law that a key employee usually meets the requirements for imposing fiduciary duties. Beyond the group of directors, officers and key employees, the Courts are cautious in imposing the onerous duty of fiduciaries to employees, because the law “favours the granting of freedom to 146  Part II Legal Issues in Hiring and During the Course of Employment individuals to pursue economic advantage through mobility in employment” [quoting Barton Insur- ance Brokers Ltd v Irwin at para 39] and recognizes an individual’s need to earn a livelihood. Not every employee performing an important and central role is a key employee. (at paras 99-102; citations omitted) Enforceability and Interpretation of Written Contracts Even after agreement on the terms is reached and the contract is signed, there are several issues that can affect the enforceability and interpretation of written employment contracts. A party who is unhappy with the terms of an employment contract may challenge the con- tract’s enforceability by raising one of the issues described below. For example, a written contract may restrict the amount of notice of termination to which an employee is entitled. If terminated, the employee may argue that the specified term is unenforceable because it does not meet minimum statutory standards, and therefore common law notice—which is usually much more generous than the notice specified in a written employment contract— should apply. Both parties to the employment contract need to be aware of the following issues so that they can avoid these pitfalls. Lack of Consideration It is a basic principle of contract law that for a contract to be enforceable there must be an offer, acceptance, and consideration. Consideration is something of value that each party exchanges. In the employment context, consideration is usually provided by the promised exchange of payment for work performed. A lack of consideration can become a problem for an employment contract in two ways. The first is when an employee begins work before the contract (and therefore all the duties of the employee) is finalized. The second is when the employer changes some of the employee’s duties later in the employment relationship. Where an employee begins working before the contract is finalized, the employee may allege that the contract, signed after work began, is unenforceable because the employer provided no new consideration in exchange for those terms. Any significant terms that limit the employee’s rights or impose duties on the employee that were not already agreed to before work began may prove to be unenforceable. In Francis v Canadian Imperial Bank of Commerce, a decision that has been followed in several BC and Alberta cases, the em- ployee had already accepted employment with the bank before signing the bank’s contract. The Ontario Court of Appeal found that the employer could not rely on the three months’ notice clause in the contract because there was no new consideration for the added term. The employee was therefore entitled to common law notice of 12 months. The other, more common, challenge arises when an employer wants to add a new term to a contract during the employment relationship. To do so, the employer must offer some- thing additional (fresh consideration) to the employee. Amending contracts by adding or changing duties and rights without providing fresh consideration will usually make the new terms unenforceable—and may even amount to constructive dismissal. It is, however, possible to set up an employment contract in a way that enables changes without the need for fresh consideration. If the employer incorporates a document (such as a list of employee expectations or a code of conduct) by reference into the original employment offer and makes that offer conditional upon the prospective employee’s acceptance of the terms in  Chapter 5 The Employment Contract   147 the incorporated document, then changes to the contract during the course of employment may be permitted—as long as the employer notifies employees of the changes when they are made. It is also advisable to specify in the offer that the document may be amended during the period of employment. In ASM Corrosion Control Ltd v George, the defendant was an instrument technician who was the “manager of Alberta operations” for the plaintiff. He resigned a month after travelling to Texas to take an employer-funded course, triggering the engagement of an employer-reimbursement clause in the policy manual incorporated by reference into his indefinite-term unwritten employment offer about eight years earlier. An amendment to that policy had occurred about three years after he began working. The amendment required employees who resigned within a year of benefiting from an employer-funded course to pay back not only the actual cost of the course, as was previously required, but also travel and other costs associated with attending it. Furthermore, employees were required to pay back the amount of their salary paid to them while the course was in progress. The defendant claimed to be unaware of these obligations. In finding in favour of the employer, the Alberta Provincial Court observed that ASM Corrosion had taken the following steps to ensure that employees were made aware of any new policies: clear language was used to articulate each policy, new manuals were provided to each employee after each update, employees were required to sign acknowledgment- of-receipt forms after every revision, and a master copy of the policy was made readily accessible for reference at all times. Moreover, and in particular, in discussions with the de- fendant prior to his leaving for Texas, the plaintiff had reminded him of the relevant policy regarding reimbursement obligations. Once the employee begins work, it is too late to ask them to sign the contract, unless the employer is prepared to provide some new consideration, such as a signing bonus. Watson v Moore Corp illustrates some of the pitfalls employers can run into when changes are made to the employment contract without new consideration. Continuing Normal Employment Not Valid Consideration for Changes to Original Contract CASE IN Watson v Moore Corp, 1996 CanLII 1142 (BCCA) POINT Facts Watson had worked for the defendant employer for 25 years. For the first 13 years, the parties did not have a written employment contract. Then over the course of the remaining 12 years of her employ- ment, she was asked to sign several variations to the contract, including some changes that were less beneficial to her than before: the amount of notice she would be entitled to if she were dismissed was reduced, and she was asked to accept an onerous non-competition covenant. Eventually, Watson was dismissed without cause and given 20 weeks’ pay in lieu of notice; she sued for wrongful dismissal, claiming that she was entitled to greater notice of termination. Her employer took the position that she was required to sign the various changes to her contract as a condition of her continued employment. Watson argued that she signed the last two contracts because she assumed that if she did not, she would lose her job. The trial Court ruled that the con- tinuing of her employment was good consideration for the modification of the contract even where such changes were not necessarily beneficial to the employee. Watson appealed the decision to the BC Court of Appeal. Relevant Issue Whether continued employment constitutes adequate consideration in an employment contract. (Continued on next page.) 148  Part II Legal Issues in Hiring and During the Course of Employment Decision The Court of Appeal said there was no consideration for the changes that were made to the original employment contract. It said that continuation of a worker’s normal employment duties does not alone constitute consideration for a change in the worker’s employment contract. Had there been some evidence of some forbearance on the employer’s part from dismissing the worker, then there could be consideration. Because the changes that were not favourable to the employee were not supported by consideration, the employee was entitled to claim a longer period of notice for her dismissal. The Watson decision has been applied in several recent cases across Canada in which employers have attempted to add new terms after employment began, including ­non-­competition clauses imposed on employees once they have moved up to more senior positions (see, for example, Skana Forest Products Ltd v Lazauskas and National Bank Financial Inc v Canaccord Genuity Corp). As mentioned above, there is another legal risk of changing a policy manual or other aspects of employees’ working conditions. Even with sufficient notice, which can eliminate the “lack of consideration” risk, changes may amount to constructive dismissal if they are substantial enough. (For more on changes in employment terms and constructive dismissal, see Chapters 11 and 14.) Inequality of Bargaining Power Written employment contracts can be challenged based on the parties’ alleged inequality of bargaining power at the time the contract is negotiated. Courts have been sympathetic unconscionable to these arguments where the terms of a contract are unconscionable (unreasonably one- in the context of an sided) and the employee did not understand them. This could occur, for example, where the employment contract, employee has little education or the employer applied undue pressure. something that is unrea- However, apparent inequality in bargaining power does not in itself render a contract sonably one-sided unenforceable. To show inequality of bargaining position, the transaction, when viewed as a whole, must, as the BC Court of Appeal specified in Harry v Kreutziger, be “sufficiently divergent from community standards of commercial morality” (at para 26) that it should be set aside as unjust. Failure to draw an employee’s attention to a key term of the contract will not necessarily render a contract unenforceable (Wallace v Toronto-Dominion Bank). To minimize the risk of a challenge based on inequality of bargaining power, there are several things the employer can do: Ensure the terms of the contract represent a reasonable balance between the interests of both parties. Provide the candidate with a written copy of the proposed contract and give the candidate enough time to read it and obtain independent legal advice before signing. This allows the person to carefully review the terms of the contract and to understand them or have them explained fully so that the employee cannot later claim to have been unaware of a term or its meaning. Include a provision in the contract stating that the candidate had the opportunity to obtain independent legal advice before signing. Include a certificate of independent legal advice for the lawyer to review and sign con- firming that they have fully explained the terms and laws referred to in the contract.  Chapter 5 The Employment Contract   149 Draw the candidate’s attention to key terms such as non-competition, n ­ on-­solicitation, and termination notice clauses and have the candidate initial them. Obsolescence A contract may be challenged on the ground of obsolescence where its terms no longer reflect the realities of an employee’s position within the organization. In Lyonde v Canadian Acceptance Corp, the employee had been promoted over a 24-year period from a junior pos- ition to vice-president of administration. The Ontario Court of Justice refused to enforce a termination provision that provided no notice of termination. It found that his position within the organization had changed so dramatically that the essence of the employ- ment contract was now fundamentally different. He was awarded 21 months’ notice of termination. In McKercher v Stantec Architecture Ltd, the Saskatchewan Court of Queen’s Bench, citing Irrcher v MI Developments Inc, examined a termination clause in an 11-year-old contract where an employee’s responsibilities and remuneration had changed substantially since the time the contract was signed. “Simply Not the Same Job”: Employment Contract Found to Be Obsolete