A Question of Law<br> Adding a definition of “employee” to contracts can help keep HR out of court

With today’s contingent workforce of contractors and part-timers, deciding who’s an employee is no longer clear cut, as one firm found out when it came to stock options.

A great deal of litigation arises from fuzzy wording in employment contracts and benefits agreements. Usually, the courts will construe any ambiguity in the employee’s favour. The so-called “contra proferentem” rule says that a vague contract is to be construed against its “drawer” (the person who created it).

For that reason, it is always better to define your terms and be precise.
In fact, it could be said that one employer lucked out before the Ontario Court of Appeal recently, in that it came out winning even though it was imprecise in drafting its benefits policy.

The dispute was over a stock-option plan at Open Text, a software developer. In 1991, Open Text hired Douglas Gibson to be its chief financial officer. The board made Gibson an “eligible participant” under the stock-option plan. The plan defined such a participant as “any full or part time employee of the corporation ... together with such other person or persons as may be expressly designated” by the board.

The plan’s terms also said that the right to exercise the options terminated when the eligible participant was no longer Open Text’s employee. But it did not define “employee.” And these days, with people working in all sorts of capacities — part-time, freelance, home-based, short-term, etc. — leaving that definition in the air can be problematic.

Gibson had a right to claim 30,000 shares at 10,000 per year and 25 cents per share. However, he resigned without exercising any option. Then he learned that Open Text was about to go public. In other words, the public at large would have the opportunity to purchase shares, and they would be traded on the open market.

Sensing that this could greatly increase the value of employee-held shares — such initial public offerings (popularly dubbed IPOs) have created overnight millionaires in the high-tech sector. Gibson tried to exercise his options, claiming that he had been a consultant, not an employee, such that he was not limited in time as to when he could exercise his options. But Open Text said that, as he was no longer an employee, he was ineligible.

Q Assuming that Gibson was a consultant, did he have the right to exercise the options?

A Gibson had, in fact, worked briefly as a consultant for Open Text, and the trial judge accepted that, as Open Text had paid him on an hourly basis, his consultant claim was reasonable. And the Court of Appeal decided (rather liberally, this writer would suggest) that the trial judge could reasonably reach this conclusion.

However, it disagreed with the trial judge where he awarded Gibson the right to exercise his options.

Writing for the court, Justice John Laskin said that Gibson could not claim that he was an employee under the options agreement for the purpose of exercising the option, but then say he was not an employee to avoid the agreement’s termination provisions.

The plan, Justice Laskin found, used “the word ‘employee’ to define the rights of any eligible participant, whether strictly an employee of the company or not. Under this interpretation Gibson is an ‘employee’ for the purposes of the plan.

The plan is loosely worded and the term ‘employee’ is not defined. However, a fair reading of the plan as a whole shows that the drafters used the terms ‘eligible participant’ and ‘employee’ interchangeably...

“Because ‘eligible participant’ and ‘employee’ are used interchangeably in the plan, it matters not that Gibson was found to be a consultant and not an employee of Open Text. He was, nonetheless, an ‘employee’ under the terms of the plan and was therefore bound by the admittedly harsh termination provisions.”

For more information: Gibson v. Open Text Corp., Ontario Court of Appeal docket C30863, May 17, 2000.

Jeffrey Miller is editor of Canadian Employment Law Today. For subscription information, call (416) 609-3800 or (800) 387-5164.

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