Friday, August 17, 2012

Case Synthesis: Bowes and Kelcher

While I have seen it argued that the Bowes v. Goss Power Products Ltd. case pushes employment law further into its own unique species of contract (i.e. one in which the vulnerable employee needs to be protected), I have argued the contrary, that it reconciles much of employment law with the general principles of contract law.

It is an implied term of every employment contract that the employer will not terminate the employment relationship without just cause except on reasonable notice.  That's actual notice.  Most employers choose to breach this, and to be liable for damages for their failure to do so (i.e. pay in lieu of notice).  The obligation to pay arises by virtue of the breach of contract.

However, the implied term can be modified by an express contractual term.  This is what happened in Bowes.  The employer reserved the right to terminate on a certain amount of notice or pay in lieu, and when it terminated without actual notice, the pay in lieu provisions of the contract were enforced.  The obligation to pay arises by virtue of the contract itself, and isn't subject to other principles of damages.  What Goss Power thought was a right to terminate the contract without actual notice turned out to also be a contractual obligation to pay.

But that right to terminate without actual notice may have other impacts in a few other areas.  Whether or not a contract has actually been breached is going to have consequences.

In this post, I'd like to consider the interrelationship with the proposition set out by the Alberta Court of Appeal in Globex Foreign Exchange Corporation v. Kelcher.  Globex dismissed Mr. Kelcher without notice, and then attempted to enforce restrictive covenants against him.  The majority of the Alberta Court of Appeal, citing the principle from General Billposting Co. v. Atkinson, concluded that the wrongful dismissal meant that Globex was no longer entitled to rely on the restrictive covenants.

What if somebody in Kelcher's position wasn't entitled to actual notice?  What if an employee with a termination clause like Mr. Bowes, as well as an otherwise-enforceable restrictive covenant, was fired on pay in lieu of notice?

By structuring the contract in such a way that the employer can pay the employee to go away without breaching the contract at all, the employer would be protecting itself from liabilities or losses of rights incidental to repudiating the contract, including - most likely - application of the General Billposting principle.

Also, it would be much harder for an employee to make a claim for moral damages, bad faith damages, aggravated damages, etc., without an actual breach of contract to point to.

All that being said, it's quite difficult to implement restrictive covenants in such a way that they will be upheld by the Court.  An employer hoping to rely on a restrictive covenant really needs to have a competent lawyer involved right from the recruitment stage.  I would encourage Ontario employers to contact me for assistance in drafting employment contracts.


This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

No comments:

Post a Comment