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Failure to use employment agreements properly

A topic that I address often in presentations and with clients is the failure, on the part of the vast majority of employers in Canada, to use employment agreements properly (if at all). As I have said many times, policies and agreements are the easiest ways for employers to establish the rights and obligations of the parties and avoid having them imposed by common law or other principles. Perhaps the most obvious example is the issue of termination without cause. In the event that the parties do not have a binding agreement which addresses this issue, they will be governed by the common law, which requires “reasonable notice”. This obligation is both ambiguous and, in many cases, unnecessarily onerous for the employer. Rather than having a clearly set out obligation in the event that the employer chooses to dismiss the individual, there will be uncertainty at the time of dismissal. This often leads to the unnecessary expenditure of legal fees so that both parties can get advice regarding the appropriate amount of notice. If a negotiated agreement cannot be reached, litigation can ensue. A clearly worded, enforceable agreement can avoid much or all of this.

The other aspect of this issue is that many employers who choose to use written contracts of employment do so in a manner that renders the agreement unenforceable. Specifically, what they do is make a verbal offer of employment, which is then accepted, and only introduce the written contract later on, often when the individual arrives for their first day of work. At that point, the parties already have a verbal agreement in place. This agreement comprises the terms that were discussed (typically the individual’s position, salary, and vacation) along with a variety of terms that are implied, such as the aforementioned requirement of reasonable notice of dismissal. Such a verbal agreement cannot simply be replaced by a written contract which, presumably, contains many more clauses and will typically involve the employee giving up some of their rights. In order to replace an existing contract, there must be a new contract entered into, which will require that consideration flow both ways. Such consideration can involve anything of value, such as a one-time bonus, extra vacation time, etc.

In many cases, the employee signs the written contract when they start work, or shortly before, and no one questions the enforceability of it until the time of dismissal. At that point, the employer will seek to rely upon the termination provision and the employee may seek legal advice and assert that the contract is unenforceable, as there was a verbal agreement in place beforehand. As a result, the employee will argue that they are entitled to reasonable notice as required by the common law.

Recently, the Superior Court of Ontario had occasion to consider this very issue in a case involving Home Depot. In a wrongful dismissal claim, Home Depot defended on the basis that there was a written agreement in place that provided for two weeks’ pay in lieu of notice for each completed year of service, with a minimum of two weeks and a maximum of twenty-six (26) weeks pay. The individual was employed for a few months short of two years, at which point he was dismissed without cause. Home Depot provided him with two weeks’ pay in lieu of notice in accordance with the terms of the agreement.

In a strategic procedural maneuver, Home Depot brought a motion for Summary Judgement, arguing that the claim should be dismissed on the basis that it had complied with the terms of the written contract of employment and had no further obligation to the plaintiff. As many readers will be aware, the Rules Of Civil Procedure were amended at the beginning of this year in order to allow, among other things, more widespread use of Summary Judgement motions. In the context of employment law disputes, the expectation is that more plaintiffs will rely upon Summary Judgement motions in order to seek judgement more quickly and cost-effectively than by proceeding through the entire trial process. In this case, it was the defendant that sought to short-circuit the process and obtain a quick judgement. However, Home Depot failed in this regard.

In a Summary Judgement motion, the parties give evidence by way of affidavit, as opposed to oral evidence in court. In the Plaintiff’s affidavit, he gave evidence that prior to signing the written agreement in question, he had already received and accepted a verbal offer of employment. Furthermore, he alleged that after accepting the verbal offer, he was pressured to immediately sign the written contract, without any opportunity to retain independent legal advice. Furthermore, the Plaintiff alleged that the termination clause in the written contract was never explained to him, and that he had no understanding of the common law rights that he would be giving up.

Home Depot did not file any evidence to respond to these allegations. As a result, the motions court Judge refused to grant Summary Judgement in favour of Home Depot. Among other things, the judge noted that as follows:

Accordingly, on this motion I am left with Mr. Obaidi’s uncontradicted assertion, under oath, that Home Depot made him an oral offer of employment prior to Mr. Jones’ Offer Letter of October 12, 2007.

[18] While I tend to agree with the position of Home Depot on the second issue, I am still left with a record in which the plaintiff has adduced some evidence that a binding employment agreement was entered into between the parties prior to the execution of the written Employment Agreement containing the notice provision, and the moving party/defendant did not respond to that evidence.

[19] In the present case Home Depot moved for summary judgment, but it elected to leave unchallenged, either through reply evidence or through the cross-examination of Mr. Obaidi, the plaintiff’s evidence about the existence of a binding, oral contract of employment. The obligation to “lead trump” on a motion for summary judgment applies equally to both parties. Here, the defendant/moving party has failed to respond to a material assertion of fact by the plaintiff which, if accepted at trial, could cause a court to ponder the validity of the termination clause in light of the Court of Appeal jurisprudence I referred to above.

[20] The onus on a motion for summary judgment remains on the moving party to persuade a court that no genuine issue requiring a trial exists with respect to a claim or defence. The record put forward by the moving party/defendant in this case was incomplete in two respects. First, much of the evidence regarding the interview process prior to the October 12, 2007 Offer Letter was not adduced in admissible form. Second, Home Depot did not respond to the plaintiff’s evidence about the existence of a prior oral employment contract. Those two gaps in the record lead me to conclude that Home Depot has not discharged its burden of demonstrating that no genuine issue requiring a trial exists, and I therefore dismiss its motion for summary judgment.

This recent case is a timely reminder of the fact that if employers intend to rely upon written agreements (which I encourage them to do), they should ensure that the agreements are entered into in a manner that will allow the agreement to be relied upon and enforced. The unfortunately common process of making verbal offers and then presenting written agreements when the individual arrives on their first day of work is to be avoided.

What employers should do is to use the written agreement as the offer. In other words, an employer intending to hire an applicant should say something along the lines of “We would like to make an offer of employment to you in accordance with the terms and conditions set out in this written agreement, which we encourage you to review and discuss with any professional advisors, as you deem appropriate.” The agreement should be provided to the applicant at that time, either physically or electronically. If it is not yet ready, the company can indicate that they intend to make an offer in accordance with terms and conditions set out in an agreement which will follow. Either way, the individual should be provided with sufficient time to review the agreement and obtain independent legal advice. Furthermore, while not mandatory, it is certainly helpful for the employer to be able to say that they reviewed the offer with the individual and pointed out any clauses of concern, such as the termination provision. This will certainly make it harder for the individual to allege that they were not aware of the existence of that clause or the meaning of it.

Stuart Rudner
Miller Thomson LLP

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Stuart Rudner

Employment Lawyer at Rudner MacDonald LLP
Stuart Rudner is a leading HR Lawyer and a founding partner of Rudner MacDonald LLP, a firm specializing in Canadian Employment Law. He provides clients with strategic advice regarding all aspects of the employment relationship, and represents them before courts, mediators and tribunals. He is the author of You’re Fired! Just Cause for Dismissal in Canada, a textbook and database of summary dismissal cases published by Carswell. Read more
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