EMPLOYERS AT RISK WHEN NO CONSIDERATION IS GIVEN FOR CONTRACTUAL TERMS

25. February 2020 0

The British Columbia Court of Appeal recently provided guidance on what employer’s must do if they want to rely on revised contractual terms. Fresh consideration is necessary.  The employee in Quach v. Mitrux Services Ltd. 2020 BCCA 25 was terminated before he started work, but after he had left a secure position to work for this employer.  The relationship between the parties started with an email offer of a fixed term period of employment.  The relationship was finalized by a fixed term contract that was signed by the parties.  One month later, prior to the employee starting work, the employer presented the employee with a month to month employment contract, indicating that the employee had to sign the contract if he wanted to start work.  The terms of the month to month contract were much more favorable to the employer than the employee.  The employee was given no choice and signed the new agreement.  The employer then changed its mind and did not have the employee start work.  Shortly after the repudiation of the contract the employee obtained alternative employment.  The employee sued under the fixed term contract alleging that there was no consideration for the month to month contract of employment.  The employer alleged that the consideration was a promised but unpaid $1,000 reimbursement of legal fees incurred to prepare the fixed term contract.

At trial, the judge found that there was no consideration for the month to month contract and that therefore the original fixed term contract governed the parties relationship.  The judge found that the promise to pay legal fees did not constitute consideration – the payment was not made but also the promised payment had no relationship to the second contract.  An award for the entirety of the fees payable under the fixed term contract was made, as well as an award of aggravated damages.  The employer appealed, arguing that the fresh consideration required for the second contract was provided through the promise to reimburse the legal fees associated with the fixed term contract.  The Court of Appeal rejected this submission.  The primary issue was whether fresh consideration was provided to the employee as part of the “price” for the employer securing a more favorable contract.  As this was a question of fact, the deferential standard applies.  The Court of Appeal agreed with the trial judge that no consideration was provided for the second contract and therefore that the Fixed Term Contract governed the parties relationship.

With respect to whether the employer was entitled to a deduction of damages due to the earnings the employee had in mitigation, the Court of Appeal found that the contractual language of the fixed term contract establishes the amount of the payment owing to the employee by the employer immediately upon termination of the contract.  In the circumstances the employer is not entitled to a deduction for earnings in mitigation.

The Court of Appeal set aside the award of aggravated damages, finding that the evidence “falls well short of the legal standard that requires a serious and prolonged disruption that transcends ordinary emotional upset or distress”.  An award of aggravated damages in a wrongful dismissal case requires satisfaction of a two part test.  The first part of the test requires a finding of bad faith behavior by the employer during the course of dismissal.  That finding alone is not sufficient to support an award of aggravated damages, rather there must also be evidence of more than the normal transitory dismay, stress and anxiety that accompanies any dismissal to found an award of aggravated damages.  That evidence was not present in this case and the Court of Appeal therefore set aside the award of aggravated damages.

The take away for employers from this decision is the importance of ensuring that consideration is given for contractual terms, particularly when a revision of contractual terms is being put in place.  Failure to provide consideration will result in a finding that the new contractual terms do not govern the parties relationship.  When employers enter into fixed term contracts they should be aware of the risk of being liable for the entirety of the funds payable under the terms of the contract unless the contract provides otherwise.

 

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