The Importance of Enforceable Contracts and Accurate Notices at the Time of Termination: A Case Study
Kelsey Croft, Associate
Hamilton Duncan Law Corporation
Surrey, British Columbia
The decision of the Supreme Court of British Columbia in Moffatt v. Prospera Credit Union, 2021 BCSC 2463 is a good reminder that, when terminating the employment of an employee, an employer must carefully consider the enforceability of any employment contract on which it intends to rely and must ensure that the notice of termination is consistent with the employee’s actual entitlement on termination.
In Moffatt, the employer dismissed an employee who had been with the company for less than two years total, much of that time on a casual and part-time basis. The employee had signed multiple employment contracts with the employer, the most recent of which was for a temporary full-time position to cover an employee on parental leave. The full-time contract did not provide for any new benefits – such as a raise, promotion, new opportunity or other advantage – but did contain provisions with limiting the amount of notice of termination required of the employer and a non-solicitation clause. It also stipulated that, at the expiration of the temporary full-time position, the employee would return to her previous or a comparable position.
On reporting to work one day early into the COVID-19 pandemic – about three weeks after the signing of the new contract – the employee was taken aside by her manager and advised that she was being terminated. The manager presented the employee with a letter outlining her severance entitlement, but which was less than even the new full-time contract required on that front. The termination letter also referenced a longer non-solicitation period than was set out in even the new full-time employment.
The employee commenced a claim against the employer for wrongful dismissal, and included claims for aggravated and punitive damages. The employer argued in opposition that the employee’s entitlement was as set out in the new full-time contract.
Validity of the New Contract
The Court found that the new full-time contract was not valid because the employer did not provide any fresh consideration for it. That is, for a new employment contract to be valid and enforceable, the employer must provide a raise, promotion or other advantage for it. Here, although the new full-time contract contained terms to the employer’s benefit, the employee’s work hours and compensation remained the same. Accordingly the Court concluded that the employment relationship continued to be governed by the previous contract, which contained no provision limiting the notice of termination to which the employee was entitled. In the result, rather than the one month’s notice called for by the new full-time contract, the employee was entitled to reasonable notice of termination (which was three months).
The Termination Letter
The Court found that the differences between the termination letter and the provisions of even the new contract were “errors.” Even though these errors were not intentional, and resulted from preparing over 100 termination packages at the same time, the Court held that an employer has a responsibility to ensure that its termination letters are correct and consistent with their employment contracts. The employer’s lack of attention to these details – which purported to limit the employee’s entitlement on termination to increase her non-solicitation obligations (both to the employer’s benefit) – was held to be unacceptable in the circumstances and deserving of an award of punitive damages (which were set at a further 2.5 months’ salary).
Moffatt highlights the importance of ensuring that employment agreements are actually enforceable before purporting to rely on them in respect of a termination. There are numerous considerations on this front that go beyond the circumstances at play in that case. Did the employee sign the contract before their first day of work in the role, or after? Did they receive fresh consideration for signing the contract if it is not their first with the employer? Does the contract contain terms that are inconsistent with the Employment Standards Act or other laws?
The decision also reinforces that notice of termination must be given with regard to an employer’s duty to act reasonably and in good faith. Obviously from Moffatt, the notice must be prepared with attention to each employee’s specific circumstances and their actual contractual entitlements and obligations, but there are numerous other circumstances to consider, including the timing, location and manner of the termination and any explanation to be given for it.
As is clear from Moffatt, navigating legal issues in the workplace – such as termination of employment – can be incredibly difficult without the right legal advice. If you have questions regarding termination of employment or any other employment law issue, one of our experienced employment law lawyers would be more than happy to discuss them with you.
Kelsey Croft is an associate at Hamilton Duncan whose practice consists of employment, human rights and workers compensation disputes.
This article “The Importance of Enforceable Contracts and Accurate Notices at the Time of Termination: A Case Study” is for general information purposes only, and is not legal advice. Readers should not act based only on general information or neglect to seek legal advice because of it. Proper legal advice is highly dependent on the facts of each particular case, and the lawyers at Hamilton Duncan would be pleased to discuss your situation with you and to provide you with advice specific to it.