A recent British Columbia Court of Appeal decision illustrates the risks that can be involved in fixed term employment contracts. It also illustrates the value in obtaining legal advice before signing an employment contract.
The case involved Mr. Quach. He landed a new job.
Early on, he consulted a lawyer, who drafted a one year fixed term employment contract. This included clauses advantageous to the employee. One such clause stated that if the employer terminated Mr. Quach’s employment early, it would have to pay the remaining balance of Mr. Quach’s salary to the end of the term of the contract.
The fixed term contract was signed by both parties. After that, the employer sought legal advice.
The employer then decided it preferred a monthly contract. It presented Mr. Quach with a new monthly employment contract entitled “Employment Agreement and Contract Waiver.”
It was significantly worse for the employee than the original one. Not surprisingly, Mr. Quach was reluctant to sign it.
But the employer told him he had to sign it, or he could not commence working for them.
Mr. Quach had already left his previously secure employment. He signed the second contract.
Two days later, before he started work, the employer terminated Mr. Quach’s employment. Fortunately, Mr. Quach was able to find another position quickly.
He then sued the employer for wrongful dismissal based on the original fixed term contract.
The employer alleged that it terminated his employment with just cause. However, the trial judge found that the reasons offered by the employer did not constitute just cause.
The British Columbia Supreme Court ruled in the employee’s favour. It awarded him one full year’s salary under the original fixed term contract, or $138,000. It also awarded him $15,000 more in aggravated damages.
Two of the issues considered by the Court of Appeal were whether the second contract was valid, and whether to overturn the award of aggravated damages.
On the first issue, the Court held that the second contract was invalid. A contract is not valid unless both parties receive a benefit and give something up. The legal word for this is “consideration.”
The second contract was invalid because the employer gave up nothing. It offered no fresh consideration. So, that contract lacked consideration.
On the second issue, the Court of Appeal overturned the aggravated damages award.
Aggravated damages may be awarded in a wrongful dismissal if the court finds that:
- The employer engaged in conduct during the course of dismissal that was unfair or in bad faith; and
- The manner of dismissal caused the employee mental distress, which is well beyond the normal distress and hurt feelings that invariably accompanies loss of employment.”
The first part of the test was met. However, the Court of Appeal considered that the evidence was not sufficient to establish that the second part of the test was met. One factor the court specifically referenced was that the employee had told the employer that he would “see [him] in court.”
The Court of Appeal commented that this demonstrated a “sturdy response” to the dismissal.
Even without the aggravated damages award, though, the employee still walked away with $138,000.
Both employees and employers are wise to carefully review, seek advice on, and understand the terms of an employment contract before signing it. Failing to do so can cause problems later. Protecting your rights in the beginning can be well worth the effort.
The content of this article is intended to provide very general thoughts and general information, not to provide legal advice. Specialist advice from a qualified legal professional should be sought about your specific circumstances.
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