Monday, April 29, 2013

Successor Employer Can Rely Upon Termination Clause Despite Ignoring Contract

There's a new case, Whittemore v. Open Text, which is somewhat unusual.  Its second sentence is "This is not a claim for constructive dismissal", and when the case is defined at the beginning by what it isn't, you know it will be different.

Whittemore started with a company called SoftArc in 1994, which was taken over by MC2 in 1999, which was in turn acquired by Open Text in 2002.

MC2 had Whittemore sign an employment contract which entailed, among other things, limited pay in lieu of notice of dismissal, and a month-long paid sabbatical every five years.

When Open Text took over, he signed a new non-solicitation and non-competition agreement, but no new contract, and it was understood at that point that he would no longer receive the sabbatical.

He was dismissed in 2011, on a not-for-cause basis, and provided with notice in accordance with the 1999 contract.

The Issue

Can Open Text rely upon the 1999 contract, despite having breached it?

The plaintiff's argument appears to be that the written contract ended at the time of the takeover when Open Text made it clear that it did not intend to be bound by its terms (i.e. by providing the sabbatical).  It is not open to a successor employer, the plaintiff argued, to pick and choose which contractual terms to keep.

The Decision

Open Text acquired MC2, but this didn't have any material change on Whittemore's employment relationship.  Indeed, Open Text stood in MC2's shoes in terms of the employment relationship, and had all of MC2's rights and responsibilities relating to Whittemore's employment.

Therefore, Open Text's failure to provide the sabbatical was probably a breach of contract, and if Whittemore wanted to seek a remedy for that, he should have.  It was not open to him to carry on with the employment relationship otherwise in accordance with the contract for 9 years, and then take the position that the employment contract was void.

My Thoughts

I can understand the plaintiff's argument, but I think the Court's decision was pretty much the only right answer, on the facts and issues as described.  The default presumption is that a successor employer is bound by employment agreements, and there's no need to affirm its commitment to them.  If my employer gets taken over and the new owner asks me to sign a contract saying I'll work double the hours for half the pay, I'm probably going to say no...if they fire me, they have to provide me with the notice to which I'm entitled; if not, I keep working my same hours for the same pay in accordance with my pre-existing employment contract.

Pretty simple, really.

So yes, if Whittemore wanted his sabbaticals, he should have demanded them, and possibly sued for compensation for the employer's breach of contract.  (He may or may not have been successful in that; there are nuances here.)

However, I can't help but wonder if there may have been nuances in the plaintiff's argument which were missed by the Court, given the overall framework described.

This fellow signed an employment agreement in 1999, after he'd already worked for a predecessor in the same role for 5 years.  In 1999, the law surrounding "fresh consideration" in employment contracts (i.e. that to bind an existing employee to a new contract, you have to give them something new) was not well-developed, and it was not something that most employers would necessarily have made a note of including.  If there was fresh consideration, it would have been accidental...

...such as, for example, an unusual term giving the employee a month-long paid sabbatical every five years.  If that were the only fresh consideration (NB: I don't know if this is the case; I'm simply speculating), then Open Text reneging on it three years later (i.e. before he received a sabbatical?) would deprive him of the whole benefit of the fresh consideration, perhaps or perhaps not constituting constructive dismissal, and making it an entirely different question as to whether or not there's fresh consideration at all.

To be clear, I'm not sure if the plaintiff made this argument, and I'm not sure if the argument would have been available on the facts.

But it would sure be a more interesting one.  Imagine my employer puts a contract in front of me limiting my notice, but promising me a generous new compensation rate for off-site work, of which I currently do a fair bit, so I sign.  The contract changes nothing else about my current employment.  The next day, the employer advises me that they're implementing new systems so that I will be able to perform all my work on-site, so I never get paid at the new generous off-site rate.  In most cases, that would not amount to a constructive dismissal, but it completely undermines the benefit I obtained through the 'fresh consideration', in effect meaning that there was no consideration.  I could get behind a different result in such a case.


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.

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