Background
Mr. Singh was recruited over the course of nearly a year of negotiations to join Clark Builders, an Alberta-based construction company. Despite rejecting several earlier offers from Clark Builders, Mr. Singh ultimately signed an Offer of Employment and a separate employment contract containing handwritten amendments which he personally proposed. This included a termination clause that Mr. Singh amended referencing “a 90-day notice period for the employer” replacing the employer’s standard language referring to payment in accordance with the Employment Standards Code.
In 2013, Mr. Singh joined Clark Builders as the Vice President, Corporate Operations on the mutual understanding that he would subsequently be promoted to COO upon the incumbent’s retirement. In 2015, he was promoted to COO and carried out those duties until concerns emerged around Clark Builders’ financial reporting. These concerns resulted in substantial profit write-downs in 2019. The company took the position it had just cause for termination, but it offered Mr. Singh 90 days’ pay in lieu of notice if he would sign a release. Mr. Singh refused and commenced a wrongful dismissal action claiming 12 months of common law notice.
Key legal issues
Is the contract termination provision enforceable?
Mr. Singh argued that the termination clause in his contract was ambiguous and should be applied in his favor. He also argued that significant growth and expansion to his employment role over time had invalidated his original employment contract (a common law concept known as the “changed substratum doctrine”).
However, the Court disagreed. It concluded that the termination clause clearly entitled Mr. Singh only to 90 days’ notice or pay in lieu. The Court noted that Mr. Singh was a sophisticated party and had balanced bargaining power with his employer. The Court also noted that Mr. Singh had amended the termination provision as part of his contract negotiation.
Moreover, the Court concluded that the contract expressly contemplated changes in his employment duties and responsibilities. Therefore, Mr. Singh’s promotion to COO fell entirely within the parties’ original understanding of the employment arrangement and the “changed substratum doctrine” did not apply.
Did Clark Builders repudiate the contract by alleging just cause?
While Clark Builders initially claimed that Mr. Singh’s alleged poor performance and failure to address financial discrepancies in the company amounted to just cause, it withdrew those allegations before trial. Mr. Singh argued that Clark Builders repudiated his contract by alleging the existence of just cause in bad faith. However, the Court held that if an employer has a good faith basis to allege just cause at termination or during litigation but later decides not to pursue it or cannot prove it, the employer can still rely on an otherwise valid without cause termination provision.
Outcome
Ultimately, the Court dismissed Mr. Singh’s claim for common law reasonable notice (which would otherwise have been 12 months), instead enforcing the 90-day notice provision. It awarded him CA$86,699.70 in damages, representing base salary, vehicle allowance and benefits for the 90-day period, plus interest.
Key takeaways
The Court clarified that there are exceptions to the general principle that contractual uncertainty should be resolved in favour of the employee. It emphasized that in cases where a sophisticated employee, particularly in a senior or executive role, has had a significant opportunity to negotiate their contract and has actively contributed to drafting or modifying specific terms, courts may be less inclined to interpret such clauses strictly against the employer. The Court confirmed that employers can rely on detailed employment negotiation records and amendments proposed by employees to demonstrate mutual agreement and fairness in the formation of the contract.
The Court also clarified that the changed substratum doctrine does not apply where a promotion or change in responsibilities is both anticipated and expressly contemplated in the employment contract. Therefore, employers should ensure that employment agreements contain language explicitly addressing potential changes in title, duties, and responsibilities for an employee. These clauses will provide additional protection in the event an employee’s role with the organization evolves over time.
Finally, the Court clarified that employers do not automatically lose the right to rely on a without-cause termination clause simply because they allege just cause against the employee. However, allegations of just cause must be brought in good faith so employers should ensure that there is a sufficient factual basis to allege just cause from the outset.
If you would like assistance in developing, implementing, reviewing or revising your employment agreements to align with current best practices, please reach out to Taylor Holland or any member of the Dentons’ Employment and Labour group.
