An employment agreement is one of the key documents that regulates the terms of the employment relationship between an employer and an employee. In order to minimize the potential for employment disputes down the line, the agreement must be carefully drafted and reviewed by an experienced employment lawyer.

This article explains the importance of having a fair employment agreement, with reference to the recent decision of the Court of King’s Bench of Alberta in Northern Air Charter (PR) Inc v Dunbar. In this case, an employee commenced proceedings after being laid off, arguing that he had actually been terminated because his contract did not envisage the possibility of a layoff.

The contents of an employment agreement

The employment contract outlines and defines the terms and conditions of an employment relationship. It sets out the rights and obligations of the employer and the employee, both during the term of the employment as well as the consequences of terminating the relationship (or what happens at the end of a fixed-term agreement).

An employment agreement addresses various aspects of the relationship, such as compensation, vacation time, leave, duties and responsibilities, termination obligations and restrictive covenants, for example, non-solicitation clauses.

Employment agreements are both complex and important

A well-drafted and detailed employment agreement benefits both parties as it reduces the chances of protracted disputes and litigation throughout the employment relationship. Having a written contract does not eliminate this risk, but a properly negotiated and drafted agreement should satisfy the needs of each party.

One of the reasons that an employment agreement does not completely eliminate the risk of a future dispute is that the terms of the agreement may be vague or unclear, and the parties may disagree on the proper meaning (interpretation) of a provision.

The employment contract must also comply with various sources of law, including legislated employment standards. If it does not, the non-compliant provisions of the agreement probably will not be enforceable.

Having an experienced employment lawyer draft the agreement, rather than simply relying on a boilerplate document, can often help address these issues.

Employee was informed that he was “laid off” due to restructuring

Turning to the recent decision in Northern Air Charter (PR) Inc v Dunbar, the plaintiff employee claimed that he was terminated without receiving any sort of termination package from the defendant employer without notice. He sued his employer for wrongful dismissal.

In 2014, the employee started working as a pilot for the employer’s business, which operated charter, scheduled and medivac flight services. His offer of employment set out the basic terms of the employment relationship.

In 2015, the employer gave the employee a copy of the employment handbook, to which he acknowledged receipt. Shortly after, the employee signed an employment agreement, which did not reference the handbook.

In 2016, the employee was told in a phone call that “we have to lay you off effective today” due to restructuring and downsizing. The employer then swiftly locked him out of the employment website and told other employees he was no longer employed.

Employer argued it could lay off the employee due to the handbook

The employer advised the employee’s lawyer that it had not terminated the employee, but that he had been laid off. A few months later, the employer sent the employee a letter seeking to recall him to work, which he declined.

In the Court proceedings, the employer reiterated that the employee was temporarily laid off, and when he failed to return to work after being recalled, he effectively terminated his employment agreement.

In support of its ability to lay off the employee, amongst other things, the employer pointed to the handbook, which dealt with “reductions in force” and envisaged “temporary layoff[s] with the possibility of recall or permanent position elimination”. It also stated:

“These policies, procedures, and practices are guidelines, designed to enhance Company operations. They are not an employment contract and should not be treated as such.”

Trial court awarded the employee compensation for a reasonable notice period

The trial judge determined that the employee’s employment agreement and legislation did not prevent him from seeking a common law remedy for damages in lieu of notice of termination.

The judge stated that, under the common law, a temporary layoff constitutes termination in the absence of a specific agreement to the contrary. The judge decided that the employee’s employment agreement did not allow the employer to lay off the employee and that the employment handbook was not a contract; therefore it did not have any bearing on the terms of the contract.

As a result, the employee was terminated and the judge awarded him five months’ pay as compensation for reasonable notice. The employer appealed.

Appeal court agreed that the handbook did not confer a right to lay off the employee

The Court of King’s Bench agreed with the trial court’s decision in favour of the employee.

The Court disagreed with the employer’s argument that it had an implied right under the employment agreement to lay off the employee due to the context that was included in the handbook.

The Court insinuated that the employer should have specifically included a right to lay off employees in its employment agreements if the nature of its business meant that this was a possibility:

“The terms of the Employment Handbook show [the defendant] was alert to the possibility that it would seek to lay off its employees. As such, it could have chosen to include that language in its employment agreements, yet it did not do so.”

Contact DBH Law in Calgary for Assistance with Drafting and Reviewing Employment Agreements

Be sure to consider whether your employment agreement is fit for purpose before a dispute has commenced. The team of trusted employment lawyers at DBH Law advises both employers and employees on a range of employment law matters, including on the content and enforceability of employment agreements. Contact us online or by phone at 403-252-9937 to arrange a consultation with one of our team members.