In employment relationships, hindsight and calamity have an uneasy but seemingly constant co-existence. Terminating employees is often analogous to ending a disappointing marriage that has been rife with conflict and resulting too often, if unprepared, in significant payments. Just as a marriage contract can provide relief, so too can an employment contract. Just as matrimonial agreements have technical obstacles to enforcement, the same is true of agreements in the field of employment law.
This became evident for Advanis Inc., an Edmonton-based market-research company, when confronted with the wrath of a recently terminated employee. Unfortunately for Advanis, its employment contract denied it the solace of protection.
In 2004, Advanis entered into an employment contract with Paul Dwyer. That contract purported to limit its payment obligations if it dismissed Dwyer without cause. Unbeknownst to the employer, the termination provision of the contract was ineffectually drafted.
Oblivious to the problems it was to imminently encounter, in 2006 Advanis promoted Dwyer to the position of executive vice-president, sales and marketing. While entering into an amended employment contract with Dwyer, Advanis committed the error of relying on its original termination provision. It soon regretted that decision.
By 2007, Advanis was in financial crisis. Informing Dwyer that it had suffered a million-dollar annual loss, it terminated his employment, relying unfortunately on its badly drafted termination provision in the employment contract. That contract stated that “you will receive severance as determined by the Employment Standards Act (“ESA”), if it was determined that there was not a fit between your skills and the requirement of the job.”
As well, the court noted, the contract did not state that the ESA amount was all the employee would receive.
Also, the ESA requires the employee to maintain benefits during the notice, whereas Advanis cut off Dwyer’s benefits immediately. As the court noted, “The employer should not be afforded the protection of a contract it breached itself.”
Predictably, a disgruntled Dwyer sued for wrongful dismissal, claiming, among other things, entitlement to severance well beyond what the contract provided. The court agreed, finding the contract vague and inapplicable to the circumstances. Specifically, Dwyer was dismissed for financial reasons, not because of his skill set, which was what the contractual termination provision was posited upon.
Much to the company’s dismay, the court awarded Dwyer not the three weeks applicable under the ESA, but 12 months for his three-and-a-half years of employment.
The fate of Advanis, in this case, is all too common. This is commonly the result of the use of cookie-cutter employment contracts, borrowed from previous versions which have been either superseded by the law or are inapplicable to the new circumstances. It is entirely preventable.
When drafted by an employment-law specialist, cognizant of the potential defences to the contract’s enforceability, such contracts are a shield against litigation and excessive severance. To obtain such a contract, employers should:
- ensure individualized employment contracts are drafted that are cognizant of the circumstances of each case;
- ensure contracts provide at least as much severance as required by minimum legislation as the employee’s full entitlement, and better yet, to ensure there is consideration, provide one week more than that;
- ensure the employee obtains something new in exchange for the contract, remembering that contracts signed at any time after agreeing to the terms, such as on the first day of work, are unenforceable;
- ensure the employee is afforded the opportunity to obtain independent legal advice, whether or not they utilize that opportunity; and
- ensure employment contracts are drafted by an expert or at least reviewed and revised by an expert.