Restricting a worker’s notice period

Written words can save thousands of dollars. Thanks to an employment contract, a British Columbia electrical and data services company was able to restrict the reasonable notice period for a worker to much less than he would have been entitled under common law.

Ask an employment lawyer about an employment contract, and you’ll likely be told that it’s “almost always in the best interest of employers.”

There are a number of reasons why a contract is often in the company’s best interests, but perhaps none as compelling as the ability to limit the notice period if the worker is let go without cause.

Without a properly worded and executed employment contract that restricts the notice period, employers will be at the whim of common law and the courts when it comes to determining reasonable notice. And that can amount to a significant dollar difference.

Thanks to an employment contract, a British Columbia electrical and data services company was able to restrict the reasonable notice period for a worker to much less than he would have been entitled under common law.

The case

Erin Strench was a 59-year-old worker with more than 30 years’ experience in the electrical contracting industry, including almost 10 years as the primary principal of a large electrical contractor.

In 2001 he accepted a position with Canem Systems Ltd. as a construction manager. On July 24, the two sides hammered out an employment contract that included a provision outlining what happens in the case of a termination.

There were a number of handwritten changes made to the employment contract during the negotiation. The salary was changed from $70,000 to $75,000 and the start date was changed from Aug. 13, 2001, to Sept. 4, 2001.

Strench started working for Canem on Sept. 4 in accordance with the terms of his employment contract. He continued as construction manager, sometimes serving as senior project manager, until April 23, 2003. On that date, he was promoted to the position of branch manager of the Vancouver branch.

At no time before, during or after the interview and hiring process for the promotion were the terms of the employment contract discussed. Nor was the issue of whether or not the contract, and its terms, would continue to be valid and binding.

The promotion

With the promotion, there were a number of changes to his employment. His salary was increased to $100,000, the car allowance was bumped from $620 to $700 per month, his bonus was enhanced and there were changes to his responsibilities.

As branch manager, he was responsible for all administrative and operations matters for 65 employees, reported directly to the president and was responsible for making contributions to overall company policy.

All of the changes were the result of oral discussions and nothing was confirmed in writing.

The firing

On Jan. 1, 2004, Canem appointed a new president who had not been involved in Strench’s hiring or his promotion. The president was not satisfied with Strench’s work and his employment was terminated on May 17, 2004.

A few days later Strench received a letter from the president confirming the termination. It also contained a cheque for six weeks’ pay. The letter included the following sentence:

“In compensation for the loss of your employment, you receive $11,772.12 which is equivalent to the six weeks’ pay in lieu of notice as per your employment contract.”

Was the contract valid?

Strench started a court action, arguing the terms of the employment contract were no longer valid.

Strench said that, like most employment contracts, it was negotiated with two parties on unequal footing. And after it was signed, there was never any discussion about the contract or its terms — especially when it came time for the promotion to branch manager.

He said the numerous oral changes to the contract rendered it unenforceable, given that the contract specified that some of the oral changes made actually had to be in writing and oral representations would otherwise be void.

The employer disagreed. It said the two parties were on equal footing when the contract was negotiated. It pointed to the handwritten amendments, especially the increase in salary from $70,000 to $75,000, as indication both sides were bargaining in a fair and balanced manner before the contract was signed.

Simply put, Canem said all of the changes to Strench’s employment were expressly anticipated and covered by the terms of the contract. A clause in the contract specifically stated that a change in salary did not need to be in writing. (See sidebar on page 3551 for the text of that clause.)

Canem said the bonus enhancement given to Strench upon promotion was contemplated and allowed for in the contract, either in a provision that allowed the company to unilaterally change the terms and conditions of the plan or in the clause that said oral changes would only be invalid if they conflict in any manner with the terms of employment.

The company said the increase in the car allowance also fell into the same category of allowable oral changes, but conceded that this change might not be covered by the contract. But if that were the case, it said, it was the only change not contemplated by the contract and was very minor and not significant enough to invalidate the entire contract.

The termination clause

Strench also took the position that the termination clause was ambiguous and therefore unenforceable. He said there were several plausible interpretations to the clause:

•it could be read as setting a ceiling for termination pay;

•the phrase “you will be entitled to” could be interpreted as providing for a contractual severance payment which did not limit any subsequent claim for additional damages based on wrongful dismissal; or

•it could be interpreted as permitting an action for damages for wrongful dismissal, but setting a minimum notice period to be given in any event.

The employer agreed that an ambiguous termination clause would be unenforceable, but said this clause was anything but ambiguous. It said the clause was exceedingly straightforward and clear in its meaning. It set out a formula for every possible contingency.

Courts reluctant to enforce contracts with short notice periods

Justice Arne Silverman of the British Columbia Supreme Court pointed out that, as a general proposition, Canadian courts are reluctant to enforce termination clauses with short notice periods. Employment contracts are different from ordinary commercial contracts because employees are vulnerable and the terms of employment contracts are rarely the result of bargaining on equal footing.

Quoting from a text, the court said: “Individual employees on the whole lack both the bargaining power and the information necessary to achieve more favourable contract provisions than those offered by the employer.”

But the court agreed with the employer. It said the termination provision (reproduced in the box above) was not ambiguous.

“In my view, it is clear and unambiguous and incapable of more than one reasonable interpretation,” said Justice Silverman.

The court then turned its attention to the argument by Strench that the contract had been rendered unenforceable by significant changes in his employment, mainly the promotion to branch manager.

Strench said the changes were fundamental and made it incumbent upon his employer to renegotiate the terms of the contract. It never occurred to him that the old contract would continue to apply in his new position.

The employer disagreed. It said the changes were not fundamental enough to warrant a new contract. There was never any intention by either party to enter into a new contract. It said the wording of the contract expressly contemplated changes in the future, with the clear understanding it would continue in force when such changes occurred.

It said there was no discussion about the contract at the time of promotion because all parties understood that it was still in force.

The court once again agreed with the employer. It said the changes to the contract were contemplated by both parties and were not so fundamental to void the terms of the contract.

It upheld the contract, and said the six weeks’ pay already given to Strench was his entitlement under the contract.

“Since the employment contract is valid and enforceable, (Strench) is entitled only to the amount of severance pay he has already been offered,” said Justice Silverman. “He is not entitled to the notice that he might have been entitled to if the contract were invalid.”

For more information see:

Strench v. Canem Systems Ltd., 2005 CarswellBC 2981 (B.C. S.C.)

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