Signing your Name on the Dotted Line is Not Always Enough: A Signed Employment Contract May Not Be Enforceable

June 12, 2019

The termination of a long-term employee without cause can result in a significant liability for an employer. Employers can reduce their liability by having a signed employment contract that limits the amount of notice, or pay in lieu, an employee is entitled to in the event of a termination without cause. However, a signed employment contract, in and of itself, may not be sufficient. In a recent decision of Ariss v. NORR Limited Architects & Engineers, 2019 ONCA 449, the Ontario Court of Appeal dealt with the issue of whether the employment contract that had been signed was valid and enforceable. In that case, the employee had been forced to sign a new employment contract by his employer part-way through his employment.

Facts

The employee, John Ariss, was a professional engineer. He began full-time work as an architect for a business in 1986. NORR (“the Company”) bought the business in 2002. In order to continue his employment, the employee signed a new employment contract with the Company.

In June 2006, the employee requested that his hours increase from 35 to 40 hours per week. The Company agreed and increased his salary accordingly. The employee signed a letter acknowledging the amendments to his employment contract, including the “new Conditions of Work and Group Benefits under Pay Code 3.” Pay Code 3 contained the Company’s termination policy. The Company’s termination policy limited the employee’s entitlement, upon a termination without cause, to the statutory minimums: notice, or pay in lieu, of one week for every year of service up to a maximum of eight weeks1 and statutory severance pay.

In 2013, the employee requested that he transition from full-time hours to part-time hours. The Company would not agree to the transition unless the employee:

(1) resigned from his current job,

(2) entered into a new employment contract,

(3) agreed that his notice entitlement, in the event of a termination without cause, would be calculated from the date of signing the new employment contract,

(4) waived his years of service, and

(5) abandoned his accrued entitlement to severance pay for previous years of service.

The Company made it clear that these terms were non-negotiable. The employee signed the new employment contract with the Company’s terms.

In 2016, the Company terminated the employee without cause. The employee was provided with 3.5 weeks’ pay in lieu of notice, calculated on the basis of the new employment contract. The employee did not receive any severance pay. The employee filed a wrongful dismissal action.

The Superior Court Decision

The Court held that the employee had been continuously employed since 1986 and that there had been no interruption in his continuity of service. His employment had not been interrupted during the 2002 sale of the business. His employment also had not been interrupted in 2013 when he resigned from his full-time job. The Court held that the 2013 employment contract was an artificial attempt to interrupt the continuity of employment. The employee had merely transitioned from full-time employment to part-time employment.

The Court concluded that the 2013 employment contract was an amendment to the previous employment contract. The 2006 employment contract, which included a waiver of his entitlement to common law reasonable notice, was still enforceable. The adequacy of consideration for the 2006 employment contract was not an issue because the 2006 employment contract had been precipitated by the employee’s request for changes to the terms and conditions of his employment.

As a result, the Court held that in accordance with the 2006 employment contract, the employee was only entitled to his statutory entitlements, based on his thirty (30) years of service, which was limited to 8 weeks’ notice of termination and 26 weeks of severance pay under the Employment Standards Act (“ESA”).

The Court of Appeal Decision

The Ontario Court of Appeal explained that the employee’s purported resignation and waiver of accrued years of service was an illegal attempt to contract out of the ESA. However, the invalidity of the resignation and the waiver of accrued years of service did not invalidate the 2013 employment contract as a whole. Furthermore, the 2013 employment contract did not change the provision relating to termination without cause, which had been included in the 2006 employment contract.

Lesson for Employers

Employment contracts must, at a minimum, comply with the applicable Employment Standards legislation. Attempts to contract out or circumvent an employee’s rights under Employment Standards legislation will result in the entire provision being found to be invalid. A forced resignation and re-hire does not reset an employee’s length of service.

Employers can limit the amount of notice an employee is entitled to upon a termination without cause, by including a provision in the employment contract that clearly sets out the employee’s entitlements. However, these provisions must comply with Employment Standards legislation. If terms and conditions that limit an employee’s legal entitlements are added or amended part-way through the employment relationship, an employee must receive some form of consideration for agreeing to such terms, otherwise the provision will be found to be invalid and unenforceable.

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1 ESA (ON), s 57. New Brunswick’s Employment Standards Legislation only requires two weeks’ notice if the employee is terminated without cause and has worked continuously for six months to five years minus one day or four weeks’ notice if the employee is terminated without cause has worked continuously for five years or more: Employment Standards Act, SNB 1982, c E-7.2 [“ESA (NB)”], s 30(1).

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