The dangers of outdated employment contracts

Contract signed in Ontario before employee was transferred to British Columbia doesn’t hold up in court

The long legal history of Bill Waddell and his former employer, Cintas Corporation, is a cautionary tale for all multi-jurisdictional employers in Canada. (Waddell v. Cintas Corp, [1999] B.C.J. 2404 (B.C.S.C.), reversed on appeal at [2001] B.C.J. 2619 (B.C.C.A.) and reheard at [2002] B.C.J. 1522 (B.C.S.C.))

Cintas rents uniforms to various businesses. Waddell was initially hired by Cintas’ predecessor, Cadet, as its director of sales and marketing in the Toronto office in July 1995. He signed an employment agreement prior to starting employment which stated:

“The parties agree that the team member’s [Waddell’s] employment under this agreement may be terminated as follows:

“By Cadet ... upon Cadet giving the team member written notice of termination or pay in lieu thereof and severance pay, if any, in accordance with the requirements set out in the Ontario Employment Standards Act. Cadet agrees that in the event the relevant termination notice requirement in the Ontario Employment Standards Act is less than four weeks, Cadet shall give written notice of termination of four weeks or pay in lieu thereof. The parties hereto agree that the notice of termination of employment provided for in this agreement constitutes reasonable notice.”

In June 1997 Waddell was transferred to Vancouver as the director of sales and marketing for Act One Uniform Rentals, a Cintas subsidiary. He received a record of employment from Cintas reflecting his termination from the old position. At the time of his transfer he received an enhanced compensation structure.He was given a base salary of $90,000 and a significant incentive compensation plan. His projected commission was $35,600 in year one and $63,320 in year two.

Although he was very successful in the position, he was terminated on August 10, 1998, because he refused to agree to a reduced compensation package being proposed by Cintas.

At trial Waddell’s counsel argued the Ontario-based agreement constituted an impermissible waiver of the B.C. Employment Standards Act. Accordingly, the terms of the employment contract (limiting notice) would be void and the common law rules governing the provision of reasonable notice would apply.

Waddell’s counsel also argued the underlying “substratum” of the Ontario agreement had disappeared given the transfer to British Columbia and the material differences between Waddell’s job duties in Ontario and in British Columbia. Accordingly Waddell ought not to be held to the terms of the old contract.

Defence counsel for the employer disagreed. The employer’s counsel argued the Ontario act and B.C. act each required the same period of notice and were consistent. Since the requirements of the B.C. act could be met under the terms of the agreement despite the reference to Ontario legislation, there was no inconsistency. Furthermore the Ontario agreement was not explicitly limited to the Ontario position. Aside from geography and compensation terms the two positions were virtually identical.

Both sides cited the case of Shore v. Ladner Downs (1998), 52 BCLR (3d) 336. This case stands for the proposition that a termination agreement which could potentially violate the minimum requirements of the B.C. act (even at some uncertain future date) is void and the common-law requirements for reasonable notice govern the employment relationship.

The judge agreed with the employer. He ruled the Ontario agreement was enforceable and Waddell was limited to notice as calculated under the minimums of the Ontario legislation.

The trial decision was appealed to the B.C. Court of Appeal. The B.C. Court of Appeal ruled there was, in fact, a potential discrepancy between the two pieces of legislation.

Although both the Ontario and B.C. legislation prescribed the same notice period, they did not calculate pay in lieu of notice in the same way. The B.C. legislation required the employer to look at the employee’s earnings in the eight weeks prior to termination to determine an average weekly earning rate.

The Ontario legislation stipulates the employee is “entitled to receive at his or her regular rate for a regular non-overtime work week for the period of notice prescribed.” In short the B.C. legislation looked back (to the eight-week period prior to termination) in order to calculate an average weekly wage rate, while the Ontario legislation looked forward to determine what the employee would have earned during the notice period.

Depending on an employee’s commission history there could be a significant difference between the mathematical calculation of notice under the B.C. legislation and the Ontario legislation. This theoretical difference was sufficient for the B.C. Court of Appeal to rule the termination clause was void and unenforceable.

Accordingly the appeal court ruled the matter ought to be remitted to the trial level to determine liability and damages in accordance with its ruling that the termination clause in the agreement was unenforceable. Interestingly the appeal court agreed with the trial judge that the Ontario agreement continued to apply to Waddell’s job in B.C. despite the changes in the location and compensation.

The matter was ultimately determined by Justice Sinclair Prowse in July 2002, who reviewed a number of cases before determining a six-month notice period was appropriate. Compensation in lieu of notice included base salary, loss of commission, retirement benefits in the amount of $85,000 and an award for interest and legal costs.

The case demonstrates the dangers of relying on an old contract or a contract which refers to the laws of a different jurisdiction after an employee is transferred. The case was determined about four years after the termination of employment and at significant legal cost. Employers should strive to ensure that when employees are transferred or promoted the employment agreement is updated to refer to the correct jurisdiction. From the employer’s perspective, much of the difficulty in this case could have been avoided if Waddell and Cintas had simply entered into a new agreement which referred to the requirements of the B.C. Employment Standards Act.

Neena Gupta is a partner practising employment law with Goodman and Carr LLP in Toronto. She can be reached at (416) 595-2480 or [email protected].

Latest stories