Court refuses to enforce contract term

Clause offends commercial morality standards

Wendy Carter was offered a position as store manager at a Dairy Queen in Edmonton on Jan. 1, 2001. The letter of offer provided for an annual salary at $15,000 based on a minimum 34-40 hours weekly. In order to get this job, all Ms. Carter needed to do was successfully complete the Dairy Queen training course being held in Minnesota, USA, later that month.

Ms. Carter signed the letter of offer. She failed to notice that the contract provided that she make a two-year commitment to Dairy Queen. If she chose to leave before the two-year period had expired, she would be required to reimburse Dairy Queen for the costs incurred for her training school, between $5,000 to $6,000.

Ms. Carter successfully completed the training course and commenced her employment on Jan. 29, 2001. On April 24, 2001, she resigned from Dairy Queen citing family circumstances as the reason. There was nothing in her resignation letter making reference to her obligation to repay the expenses related to her training.

The franchisee for whom Ms. Carter worked replied to her resignation letter demanding that she repay $5,587 as required by her contract of employment. The amount was broken down into training school fee, flight, hotel and meals.

Ms. Carter refused to pay and the franchisee (“Dairy Queen”) brought an action in Small Claims Court against Ms. Carter for breach of contract. At trial Ms. Carter did not appear to defend herself. The Court acknowledged that Ms. Carter did enter into a contract that contained a clause stipulating she had to remain employed by the franchisee for two years and another clause stipulating that she had to repay the costs of her training in the event that she terminated her employment before the end of that two-year period.

Before the Court granted the franchisee judgment in its favour, it considered whether the clause was enforceable. The Court reviewed the law dealing with unconscionable contracts and penalty clauses. In considering unconscionability, the Court used the “commercial morality” approach.

The test was “whether the transaction, seen as a whole, is sufficiently divergent from community standards of commercial morality that it should be rescinded.” The evidence must show that there was an inequality of bargaining position arising out of ignorance, need or distress of the weaker party, and that the stronger party had unconscientiously used a position of power to achieve an advantage and that the agreement reached is substantially unfair to the weaker party or sufficiently divergent from community standards of commercial morality.

The Court also reviewed cases dealing with claims for costs of training expenses. These cases typically did not raise the defence of unconscionability. One point raised in some of these cases was that, after receiving the benefit of training paid for by the employer and receiving a positive benefit in the form of a license, after terminating their employment the employees were able to gain employment immediately in the very field for which their previous employer had paid to have them qualified. This occurred in cases dealing with licensing real estate agents or airplane pilots.

In Ms. Carter’s case the training she received was not required to meet any permission, certification, licensing or regulatory requirements imposed upon her by any authorities. She could have performed her job at Dairy Queen without having successfully completed the training courses. By taking the training courses Ms. Carter obtained no qualifications that would open employment doors at a higher salary. The training courses were merely a requirement imposed on the franchisee by the parent corporation. It was a cost to the franchisee of doing business.

In light of the fact that the Dairy Queen training courses would not open a door for Ms. Carter to work elsewhere, the Court held that the provisions of the employment contract requiring Ms. Carter to reimburse the costs of the training course, when viewed as a whole, would offend the standards of commercial morality.

The claim was dismissed.

For more information:

889946 Alberta Ltd. v. Carter, 2002 ABPC 28.

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