Tuesday, December 15, 2015

Long-Service Employee Signs Fixed Term Contract - And Regrets It

Brent Riskie worked for Sony Canada since 1989 - he was presumably around 19 or 20 when he started.  As of earlier this year, he had a Toronto-based management position.

Last year, he wanted to move to Ottawa for family reasons, and asked the employer to accommodate such a move, that he would largely work from his new home and travel to Toronto on an as-needed basis.

The employer was reluctant.  Riskie, and his immediate supervisor, pressed the matter.  Eventually, Sony agreed to do so, but only on a trial basis, and insisted that he sign a fixed-term contract in order to do so.  While negotiations were still ongoing, he completed his move.  The contract was signed July 28, 2014, with an expiration date of March 31, 2015.

His department went through a restructure in early 2015, and on February 18, 2015, he was advised that his contract would not be renewed.  He received statutory minimum notice and severance payments - approximately 7 months.

It sounds like he likely would have been restructured out regardless of the move, and probably would have been entitled to somewhere close to two years of pay in lieu of notice.  Instead...

Recently, Justice Dunphy upheld the fixed term contract, and denied him further recovery.

The Issues

The problem was obvious:  The employer was ostensibly entitled to just...not renew the contract.  So Riskie had to find a way around that, argue that the fixed term provision was of no force and effect.

To that end, he made a few arguments.  One was 'duress' - the framework is interesting, but this doesn't look like a close case for it.  The fact that he might have felt obligated by his personal circumstances to move and accept whatever terms were put to him...doesn't affect Sony's entitlement to insist on those terms.

Two other arguments were stronger, though.  One was that the contract was unenforceable for lack of consideration, and the other was an ESA compliance issue.

Lack of Consideration

As I've noted many times before on this blog, an employment contract needs to give an employee something 'new'.  If you hire me, and then ask me to sign a contract after you've hired me, then the question is 'what am I getting out of this contract that I don't already have'?  In the absence of 'fresh consideration', the contract fails the test for enforceable promises at common law.

So the interesting quirk here is that he actually moved before the new contract was signed.  So it looks an awful lot like the 'fresh consideration' cases:  He's doing the job from Ottawa, and now he's signing a contract which...ahem...entitles him to work from Ottawa.

It's a compelling argument, at face value.

On the other hand, there's a very strong moral argument going the other way:  He knew, when he made the move, that he was going to be required to sign such a contract, and that the employer wasn't acquiescing to the move without terms on it.

Justice Dunphy focuses on that, and characterizes the 'fresh consideration' argument as "a technical argument devoid from any real-world substance".  (That's true of a lot of consideration-based arguments.  It's a very technical legal concept.)

At law, it is a fairly straightforward reality that none of that actually matters, if the employer actually did acquiesce to his terms and allow him to move notwithstanding the absence of a signed contract.

The saving grace in Justice Dunphy's reasoning on the point is this:  "it was a case of “take it or return to Toronto”".

It there's the evidence to substantiate that understanding, that Sony permitting him to work from Ottawa while negotiations were ongoing was without prejudice, and that they reserved the right to recall him to Toronto if negotiations failed, then Justice Dunphy's conclusion is right.  And I don't know what evidence was before the court - but I don't think that you can take such a reservation as implied from the fact of ongoing negotiations.

ESA Compliance

Here's another interesting one.  There's an early termination clause in the language of the contract, in the same paragraph setting out the term of the agreement, allowing the employer to terminate it on 30 days' notice.

On its face, that was deeply problematic:  A termination clause cannot contract out of the statutory minimums, and for a 26 year employee, there's a minimum notice period of 8 weeks.  (Not to mention statutory severance.)  So this early termination clause was clearly void.

This raises the question of 'severability' - when the court finds that a given provision is void by operation of law, how does that affect the rest of the contract?

There's a conceptual challenge with writing out a small part of a contract:  A contract is agreed to between the parties as a whole.  It has long been said that a court will not rewrite a contract between the parties.

On the other hand, it's fairly compelling to remove the illegal portions of a contract and leave in place the legal portions.

There have been a variety of legal doctrines employed to resolve this tension, which are either limited or controversial.  The "blue pencil" approach has often been used to determine whether or not it is possible to sever language, and how to do so:  Can a fair and coherent contract be left between the parties merely by striking out the problematic language?  By contrast, there's 'notional severance', which allows the court to controversially insert language in order to remove the illegal effect from the contract.

I've very seldom seen the 'blue pencil' approach openly discussed in employment law cases:  It is clear from the seminal Machtinger case from the Supreme Court of Canada that, at minimum, an unenforceable termination clause must be struck in its entirety.  It is incumbent upon an employer to ensure the legality of its contractual language, and the employer cannot turn to the courts to try to fix the contract after the fact.

And the question seldom arises as to how far beyond that unenforceable language we need to do.  Where it has arisen, the cases sometimes involve clear 'severability clauses' guiding the court's interpretation.  For example, in the recent decision in Miller v. Convergys CMG Canada Limited Partnership, the British Columbia Court of Appeal enforced a severability clause which spelled out that the different numbered paragraphs in the agreement were separate promises, and if one was unenforceable, the rest should be left intact.

In the absence of a clear severability clause, the question can be much more difficult.  But it seems to me fairly unusual to do what Justice Dunphy did with Mr. Riskie's contract, striking out the 'early termination' language while leaving the rest of the same paragraph intact.  Was it a separate promise?  Consider for a moment that, had the same severability language from Miller been present in this contract, it would have clearly required the whole paragraph to be struck.

Also consider that a fixed-term contract without an early termination clause can be exceedingly onerous for the parties.  In general terms, and in the context of a 26-year relationship, there are compelling reasons to think that one might have to read a 'fixed term' promise together with a corresponding 'early termination' promise.

Nonetheless, Justice Dunphy regarded them as being "logically and textually independent of each other", and found that they "are not a package that must stand or fall together."  Accordingly, despite the flaws in the early termination language, the fixed term was enforceable.

Lessons to be Learned

There are some very interesting legal issues in this case, dealing with severability and consideration, but the more significant issue is likely practical:  Be careful what you sign.

It's possible that the relocation to Ottawa was so important to Riskie that he would have done it even knowing the consequences.  Maybe he even sought legal advice on the terms, and no doubt would have been advised (a) that the early termination clause was probably not enforceable but (b) that changing from an indefinite-term contract to a fixed-term contract could have an immense impact on his existing rights upon termination.

What Riskie probably didn't anticipate was a restructure unrelated to his own circumstances.  Likely, he was confident that Sony would see that the new arrangement was viable, and that he would be able to continue to carry out his duties effectively.  "I'm not worried about getting fired, because I'm a great employee."  But when a restructure occurred for other reasons, his circumstances - and his contract - put him squarely in the line of fire.

This is why and how I encourage pushback on clauses limiting termination entitlements, particularly for employees in senior roles:  It's not about trying to get that golden parachute; it's about job security, making the employer think twice before deciding to get rid of you as a cost-cutting measure.


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.

The author is a lawyer practicing in Newmarket, primarily in the areas of labour and employment law and civil litigation.  If you need legal assistance, please contact him for information on available services and billing.

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