Lecture Summary:  The Common Law of the Employment Contract

There are lots of disputes arising under employment contracts about what contract language means and how it was intended to apply to particular circumstances .. gets more complicated because sometimes courts ‘imply’ terms that parties have not written themselves ...  and sometimes contracts are written at all, so courts need to sort out what a verbal contract means

This lecture and materials consider how we know what the employment contract says

1.     When is an employment contract invalid? (p. 68-72)

A.        Consideration

There is a rule of contract law that requires that every contract have 3 things:  (1) an offer; (2) an acceptance of the offer; and (3) mutual consideration

Consideration is a benefit – so both sides need to receive a benefit, something from the deal

Usually in employment contracts, consideration is not a problem:  ee gets money in exchange for Er getting labour  ..  but if er tries to introduce a new term after ee has already starting working, it will need to give ee something new too, or the Er’s new term is not enforceable

This was issue in Kohler Canada (p. 218, CH. 11) – Er has ee sign a contract 13 years into employment – when Er later tries to rely on a term in that contract, court rules it is unenforceable, because EE did not receive anything new in exchange

B.        Inequality of Bargaining Power

It’s possible, though rare, that a court would rule a contract is invalid because it is unconscionable, which means grossly unfair to the employee ..

e.g.  Stephensen v. Hiliti (supplemental required case):   61 year old man  terminated ..  Er offers 3.5 months notice in exchange for his agreement that he never sue Er for more notice than that ...  EE believes he needs the money and he accepts the deal  ... but later he sues for wrongful dismissal claiming ’reasonable notice’ of longer than 3.5 months

Court:   reasonable notice for this EE would have been 11 months ...  the deal EE signed giving him only 3.5 months notice was unconscionable ---  court says test for unconscionable employment contract is:  (1)  there was inequality of bargaining poer caused by ignorance, need, or distress [EE here believed he needed the 3.5 months pay to meet financial obligations]; (2) Er used its power unconscientiously to take advantage of EE’s vulnerability [here, ER barely considered what was reasonable notice for EE in his situation- he may  never get another job]; and (3) the deal diverged sharply from community standards [here, a reasonable, decent ER would not have offered such a low amount of notice in case of a 61 year old ee] ..    As a result, court ruled EE entitled to 11 months notice.

C.        Breach of Employment Standards Act

Terms in contract that provide less than a minimum required in ESA are illegal and unenforceable

We considered Machtinger (p. 71): when notice of termination clause in contract provided for less notice than ESA does, court ruled that the common law implied duty to give reasonable notice is substituted (and not the ESA minimum notice)

D. Obsolete

Sometimes an ee’s job can change fundamentally from date person first signed contract without any new updated contract being entered into – in that case, a court may rule that the original contract had become obsolete since the person’s job was now fundamentally different ..  court can replace the old terms with new ones that better reflect current job .. 

I discussed example of ee hired as burger flipper, but then 20 years later when fired he is manager of series of restaurant, but never signed a new contract ... Court may say that the old burger flipper contract was now obsolete – because doesn’t reflect what EE’S job is ..  at some point, written contract was replaced by a new verbal contract  (this is what happens in the case called Irrcher v. MI Developments on p. 70)

2. The Employment Contract

We considered 3 sources of employment contract terms:

(1)   the written terms    (2)  employment manuals    (3) implied terms

A.        Manuals

These are stand alone documents that Ers hand out that sometimes include descriptions of terms or benefits.   They are not part of the employment contract, unless they are somehow incorporated into the contract.   If they are not part of the contract then they would usually not be enforceable (unless they are a separate contract – with offer, acceptance, and consideration – they are not usually set up in this way though)

As an example, we looked at:  Ellison v. Burnaby Hospital (supplemental assigned reading) --  21 years into employment relationship, er hands ee a new handbook – ee throws it into her drawer--  when she is later dismissed, Er tries to rely on notice of termination clause in the manual – Court says no way Er, that manual is not part of the employment contract (and is not a separate contract), and therefore not enforceable – Result:   normal implied duty to give reasonable notice applies

B.  Expressed Terms

Your text walks through common expressed terms in employment contracts on p. 73-81.  You should read that discussion.  We considered a few points in the lecture.

Remuneration (pay):  can’t be less than ESA min wage

Term of Employment Contract

Contracts can be for a specific term (one year, for example) or task (build a fence) – in that case, the contract comes to an end when the term or the task is complete (no need to also give notice)

When contract is not for a specific term or task, it is considered indefinite – in that case, it comes to end lawfully when either party ends it, and it can only be ended by giving the proper amount of notice

Ers who try to avoid the requirement to give lengthy notice of termination can not always do so by trying to string together a series of short term contracts

Ceccol v. Ont. Gymanistics Fed. (p. 75):  Er employs Ee for 17 years, by using 17 consecutive one year contracts ..  when it later dismisses her, Er argues notice period is based on 1 year’s service, not 17 years   Court:  no way Er – in every respect, except the way you set up contracts, this person looks like a long service ee --  Er must give reasonable notice based on 17 years’ service (court orders 16 month’s notice)

Note:  an expressed notice of termination clause in a contract will normally override the implied duty to give reasonable notice, because implied terms are intended to fill the void left by the absence of an expressed term ...       So as long as the expressed term provides at least as much notice as required by the ESA – it is usually enforceable

But the expressed term must be clear, or courts will tend to imply the reasonable notice requirement .. this is what happened in the Christensen case  (p. 76):  the expressed term was capable of 4 different interpretations, so the Court ruled that the term did not oust the usual assumption that notice must be reasonable, and it implied the requirement to give reasonable notice

Restrictive Covenants  (p. 78)

Sometimes Ers try to control employee behavior even after the ee has left their employ – these sorts of terms are called restrictive covenants

Text discussed three:   (1) non-disclosure:  ex-ee can’t disclose confidential info they learned about while employed;  (2) non-solicitation:  ex-ee can’t try to poach ex-ers customers for their new employer or business; and (3) non-competition:  ex-ee can’t compete against er for a period of time (this is the clause that was at issue in the Kohler Canada decision (p. 218)

            We noted that courts are suspicious of non-compete clauses especially – because      they could prevent ee from earning a livelihood and are anti-competition – so            courts often restrict the scope of the non-compete clauses to a short length of time    

C.        Implied Terms

Employment contracts are usually short --  not intended to cover every thing that might happen during course of employment relationship ..  so courts often asked to decide a dispute between Er and EE when contract itself says nothing about how the dispute is to be resolved

To deal with this, courts over the years decided they have the power to imply terms into a contract to fill the void --  this means judges are making up terms

But  judges are only supposed to do this in exceptional circumstances – when it is very obvious that the parties intended the term to have been in the contract – so idea  is that the judges are just writing into the contract something the parties themselves intended to be there

However judges have used their ability to imply terms over years to create a very specific type of employment relationship that gives Er significant control over EE

We then considered various implied terms that govern ee behaviour as described in the supplemental reading from the England text (you need to read the except for a description of what the terms cover):

Implied duty to advance Ers economic interests:  this makes work to rule – complying with your contract to the letter—a breach of contract if you are doing this to harm Er – we discussed the early case of the Tube drivers in England, who were found to have breached this implied term when they engaged in a work to rule that involved complying precisely with the employer’s rule book

Implied Duty to Avoid Insolence & Insubordination (must do what you are told and not be rude about it)

Implied Duty to Avoid Lateness & Absenteeism

Implied Duty to Avoid Drunkenness, Harassment, and Moral Impropriety (this term can catch morally offensive behaviour done outside of work, if that conduct might harm the employer’s economic interests, such as its reputation)

Implied Duty to be Honest

Implied Duty to be Competent  (Er may  be able to dismiss EE ‘for cause’, without giving reasonable notice, if an employee engages in “gross” misconduct)

We noted also that there are implied terms that govern Er conduct too, including:

Implied obligation to maintain a safe workplace:  recently, this was expanded to include duty to maintain a harassment free workplace

Implied duty to give reasonable notice of termination --  this duty applies to both Ers and Ees – though usually Ers do not bother to enforce it against ees because they suffer limited damages when an EE quits without giving notice [we will discuss this implied term further when we discuss dismissals next]

Implied duty to permit EE to report to work and do their job:  once contract established a normal work schedule, it is implied that Er will let the worker come to work then.   This means that a temporary layoff is usually a breach of contract, unless the expressed terms in the contract give the employer the right to layoff an employee (most non-union contracts don’t)

Davies v. Fraser Collection Services (required supplemental case)

Facts:  ER loses a major client and as a result decide to put Fraser on temp. layoff – fraser says that is breach of his contract – and he sues for wrongful dismissal  

Court:  read paragraph 23 [nothing more fundamental to employment contract than that employees be employed and paid for services ..  is therefore a breach of contract is EE says you cannot come to work for a while] ..   EE entitled to reasonable notice [a constructive dismissal occurred when ER breached contract]