What You Need To Know
The Alberta Court of Appeal emphasized the importance of clearly identifying the term of an employment contract and the parties’ obligations and entitlements on termination.
This case is an important reminder to parties to be diligent when drafting, negotiating, or entering into employment contracts. While the beginning of an employment relationship is a time of excitement and positivity, it is essential to contemplate what the parties intend to happen if the relationship must end. Not only should an employment contract contain provisions governing the termination of employment, but parties should step back and contemplate whether the contract’s language clearly reflects their intentions for the terms of employment.
Rice was a professional accountant employed by Shell for a total of 8.5 years when Shell terminated her employment without cause. Over the 8.5 years, Rice worked under fixed-term contracts and then moved to a “conventional” employment contract, ie, a full-time indefinite term contract. About five years later, in March 2016, Shell reorganized the workplace, eliminating numerous positions; employees were required to re-apply and compete for the remaining jobs. Rice re-applied and successfully competed for the position she was in before the reorganization. Shell provided Rice with an offer letter that included, among other things, the position title, work location, and the statement “Your Assignment Length will be: 4 years”. The letter did not contain any provisions dealing with termination of employment, and Shell did not provide Rice with a contract or letter of intent outlining the terms and conditions of her employment.
When Shell terminated Rice’s employment without cause just over a year later in May 2017, they took the position that Rice was under an indefinite term contract. It proposed to pay Rice 15 months’ wages based on the common law principles of reasonable notice. However, Rice argued that she was employed under a 4-year fixed-term contract. this is significant because, under a fixed-term contract, an employee will generally be entitled to remuneration for the remainder of the term; in Rice’s case, that amounted to wages for nearly three years.
What the Courts Said
Following a summary trial, the Justice of the Court of Queen’s Bench determined that while there is a legal presumption that employment contracts are for an indefinite term, the wording in Rice’s offer letter could not be ignored. The contract was found to be a hybrid of a fixed-term and indefinite-term contract: a fixed-term contract for four years, which would automatically convert into an indefinite-term one once the four years had elapsed. Because Rice’s employment was terminated before the four-year term, the trial judge found she
was entitled to damages to reflect the remainder of the three years.
Shell appealed the decision to the Alberta Court of Appeal, where the majority of the Court upheld the trial decision.
Although the issue was argued before it, the majority of the Court of Appeal found it was not necessary to deal with the suggestion that only clear and unambiguous contract language will rebut the presumption that employment contracts are for an indefinite term and terminable only on reasonable notice . Instead, the Court held that an exercise of contractual interpretation requires it to ascertain and give effect to the parties’ intention. The focus must be on determining the parties’ intentions and reasonable expectations regarding the termination of the contract at the time it was entered into.
In examining this issue, the majority acknowledged that there was reasonably evidence that “could be found to rebut the presumption of indefinite employment” where the offer letter indicated a project-based contract with a duration that corresponded to Shell’s requirement for Rice’s service for the specific project in a remote location where Rice would not have otherwise lived. However, the facts surrounding the offer letter were more persuasive in indicating the parties’ intentions. The facts demonstrated that Shell had effectively terminated Rice’s prior contract and required her to re-apply for one of the remaining positions. Rice engaged in the competition for the position, ultimately obtaining a new contract based on the terms in the offer letter, which included an “Assignment “Length of 4 years. Given these facts, it was reasonable to find that at the time the position was offered to Rice, she did not agree to be terminated on reasonable notice one year into the assignment. Instead, Rice had reason to believe her employment would not be terminated or the position eliminated for four years. The majority further commented that an objective observer “might also reasonably conclude that was what Shell intended as well.”
The majority of the Court of Appeal further held that while the offer letter was scant on the terms and conditions of Rice’s employment, its terms were not ambiguous. The majority considered the term “Assignment Length,” finding the plain and ordinary meaning of the word “assignment” clearly indicated “a task which might require a finite amount of time to complete.” For Rice, the task length was expressly defined as four years. This, together with the lack of termination provisions in the offer letter, meant it was open for the trial judge to find that there was unequivocal and explicit language indicating a fixed-term contract. Finally, while Shell argued that it had a special, defined meaning for the term “Assignment Length” and provided evidence (human resources policies) on this, it was also clear that Rice was unaware of the special meaning of the term when she accepted the offer. , this special definition of the term could not be relied on.
This decision indicates the consequences of a court interpreting important terms of a contract where it determines that a party’s stated intention is unwritten or unclear – here, it was a difference between paying 15 months’ wages or three years’ wages after lengthy litigation. We see that parties cannot always rely on the Court to accurately ascertain and enforce what was in the parties’ minds when entering into a contract. the decision in Rice v. shell demonstrates that the plain meaning of the language used and surrounding facts can carry the day, regardless of the well-established principle that employment contracts are presumptively indefinite and terminable only on reasonable notice.
While this case may find its way to the Supreme Court of Canada, in the meantime, if you an employer drafting an employment contract, it is essential to take special care in clearly articulating the term of the contract and entitlements on termination. Field Law’s Labor and Employment Group is well equipped to provide you with guidance and assistance in this area.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.