Overview

In Canada’s common law provinces, employment is generally not “at will,” meaning an employee whose employment is terminated without cause is entitled to notice of termination of employment. While employment standards legislation provides for a minimum amount of notice (or pay in lieu), many employers quickly discover that these statutory minimums, which in British Columbia are subject to an eight-week cap, do not exhaustively set out an employee’s entitlements.

In particular, employees who are terminated without cause are entitled to reasonable notice of termination of employment at common law. Common law notice, which is inclusive of statutory notice, can range from a few weeks to an unofficial upper-limit of 24 months. Where reasonable notice of termination at common law is not provided, an employee may sue his or her former employer for wrongful dismissal, and, among other things, may be awarded damages in respect of wages, benefits, incentives, bonuses, and other perquisites of employment over the applicable notice period. Notice periods are not dependent on any formula or rule of thumb, and are set at the discretion of the court after consideration of non-exhaustive factors including the employee’s age, length of service, position and duties, education and experience and the availability of alternative employment.

Employers, therefore, can face significant liability in the event of a without cause termination of a long-term employee. A way for employers to mitigate this risk is by contract, whereby the employer and employee agree that, in the event of the employee’s without cause termination, the employee will receive a defined amount of notice or other benefit. Provided that the terms at least meet or exceed the minimum standards set out in applicable employment standards legislation, the parties are generally free to agree to termination provisions which provide less than at common law.

When termination provisions may not be enforceable: a case study

In Cheong v. Grand Pacific Travel & Trade, 2016 BCSC1321 (Cheong), the British Columbia Supreme Court dealt with such a termination clause. However, the clause in question was set out in an employee handbook, and was not included as a term in an employment agreement.

Ms. Cheong had been hired by Grand Pacific Travel & Trade (“Grand Pacific”) in 2000 as Director, Sales and Marketing. Ms. Cheong earned a salary, received benefits, and eventually received an expense allowance. In 2003 Grand Pacific introduced an employee handbook (the “Handbook”). Among other things, it purported to limit employees’ entitlement to notice upon termination without cause to statutory minimums. At the time it was introduced, employees were advised that they were obliged to become familiar with the Handbook, and to raise questions regarding its contents within a week of introduction. Where no questions were raised, Grand Pacific would take the position that the employee had accepted the Handbook’s terms. Ms. Cheong never raised any question or concern with respect to the Handbook, complied with it over the course of her employment, and at one point asked that it be translated into Chinese.

In 2010, Ms. Cheong resigned her position with Grand Pacific and went to work for another organization. However, in 2012 she was provided an opportunity to return. At the time, the parties discussed that she would return to her previous position and rate of pay, and would receive credit for her prior service with Grand Pacific. Emails were exchanged, and conversations and meetings were held. At no point, however, was the Handbook discussed or referred to in the relevant correspondence, and there was no evidence that the Handbook had been provided to her upon rehire.

Two and a half years later, Ms. Cheong was terminated without cause. Grand Pacific provided her with two weeks’ pay in lieu of notice, ostensibly in accordance with the Handbook’s terms, and based on only her recent service. Ms. Cheong commenced an action in the British Columbia Supreme Court, claiming that she was entitled to 18 months of reasonable notice of termination of employment at common law.

Did the termination provision have contractual force?

Ultimately, the Court found that the termination provision was unenforceable, not only because it did not expressly form part of the employment agreement upon Ms. Cheong’s rehire, but also because the Handbook had never had any contractual force from the outset.

To have contractual force, a term must have the following elements: “…a concluded agreement requiring both offer and acceptance, consideration, and an intention on the part of both parties that the term in question has legal effect” (Cheong at para 48). In concluding that the termination provision lacked contractual force, the Court addressed whether these elements had been satisfied in both periods of employment.

2000 to 2010

With respect to the period before her rehire in 2012, the Court held that the termination provision was unenforceable because there was no offer, acceptance or consideration to support it.

A. Offer

There was no offer when the Handbook was introduced in 2003 because the language used in the announcement and in the Handbook itself was inconsistent and ambiguous as to the Handbook’s intended effect. For example, the announcement regarding the Handbook’s introduction referred to “comprehensive terms” and a requirement that employees “observe and abide” with those terms, yet it lacked any unequivocal statement that the Handbook would have contractual force or form part of the terms and conditions of employment. The announcement also did not refer to consideration to support new contractual terms. Further, the Handbook itself stated that it was provided for “informational purposes,” and a review of its provisions indicated that many were discretionary and could be unilaterally amended by the employer. All of this suggested that the terms were not intended to be contractual and therefore that no offer was made at the time of introduction.

B. Acceptance

Even if there was an offer, Ms. Cheong had not accepted it. There was no signature or statement of acceptance, nor was there evidence of assent by conduct. The Court specifically found that neither the fact that Ms. Cheong continued to fulfill her obligations as an employee after being given the Handbook in 2003, nor the fact that she referred to the Handbook in the course of her employment, constituted acceptance by conduct. Similarly, her silence in the face of the request that she bring any concerns to management within seven days of the Handbook’s introduction could not constitute acceptance by acquiescence. The Court cited the Manitoba Court of Appeal in Weibe v. Central Transport Refrigeration (Man.) Ltd., [1994] 6 W.W.R. 305 at para. 29:

“… when considering whether a policy instigated by an employer has become part of the employment contract, courts must recognize that there is an imbalance of bargaining power between some employees and their employers and that there should be a reluctance to equate the absence of forceful rejection by an employee to an acceptance of a contractual variation” (Cheong at para 60).

In all, the Court found that there was an absence of manifest assent to the terms having contractual force.

C. Consideration

Finally, even if there was offer and acceptance, there was no consideration to support the Handbook’s terms. Grand Pacific attempted to argue that the inclusion of meal allowances, lunch boxes, half days of paid leave, compassionate leave, and travel allowances constituted consideration in the circumstances. However, the Court rejected this argument in its entirety, finding, among other things, that most of the benefits had been available prior to the Handbook’s introduction, and that some were discretionary and therefore did not constitute an enhanced benefit capable of supporting the inclusion of a new term after employment commenced.

2012 onward

With respect to the period after Ms. Cheong’s rehire in 2012, the Court found that the Handbook lacked contractual force because there was no evidence that the parties discussed the Handbook as being included in the terms and conditions of her employment, or that Grand Pacific even reminded her of its existence. Although it was clear that Ms. Cheong knew about the Handbook (having complied with it from 2003 to 2010), mere knowledge of the Handbook’s existence could not be equated with an outward manifestation of consent to its being included in the terms and conditions of her employment. The Court also noted that Grand Pacific had, on occasion, failed to comply with the provisions of the Handbook, and indicated that such conduct was inconsistent with the Handbook having contractual force.

Employers must ensure termination provisions are clearly set out in employment agreements

Cheong is a caution to employers who use employee handbooks or manuals to set out key terms and conditions of employment. Because of the impact such terms typically have on employees, including with respect to significantly reducing their entitlements upon termination without cause, courts will be reluctant to give such terms in handbooks contractual force. Employers who wish to reduce their exposure in the event of a without cause termination are generally better served by carefully drafted contractual provisions clearly supported by the requisite elements of offer, acceptance, consideration, and intention.

Finding that Grand Pacific had agreed to recognize Ms. Cheong’s prior service at the time of her rehire, Ms. Cheong was awarded damages over a 14-month notice period, subject to mitigation.