Clarifying Legal Principles in Interpreting Employment Contracts

In the recent decision of Plotnikoff v Associated Engineering Alberta Ltd, 2024 ABKB 706, the Defendant employer, Associated Engineering Alberta Ltd., appealed the decision of the Alberta Court of Justice, wherein the Trial Judge found the termination clause in the Plaintiff employee’s employment agreement did not extinguish the Plaintiff’s common law right to reasonable notice. As a result of this finding, the Trial Judge determined a reasonable notice period of ten (10) months to be appropriate, and further, the Plaintiff’s failure to seek new employment in mitigation of his losses did not reduce the reasonable notice period, nor the quantum of the Plaintiff’s damages.

The Facts

The Court summarized the relevant facts as follows:

…Mr. Plotnikoff attended Lethbridge College and completed a two-year program to become a civil engineering technologist. He was employed by the Company as a Civil Engineering CAD Technologist for nine years and eleven months. The Company was his sole employer since attending Lethbridge College. His work consisted of preparing drawings and designs for municipal infrastructure projects. He did not perform engineering type duties and had no managerial or supervisory duties…

…Mr. Plotnikoff was 33 years old at the time of his termination without cause on April 28, 2022. He was working on an approved reduced hours schedule since February 26, 2022, and he wished to continue working on a reduced hours schedule at the time of his termination.

(at paras. 7 and 8)

The termination clause at issue stipulated:

Termination without Cause: The Company may terminate employment without cause upon providing the Employee with notice as may be mandated by the Employment Standards legislation or such additional notice as the Company, in its sole discretion, may provide or, at our option, pay in lieu of such notice.

(at para. 9)

Relevant Legal Principles of Interpretation

The Court began by clarifying the applicable standard of review applicable to decisions interpreting employment contracts. In summarizing the pertinent law on this issue, Justice C.B. Thompson determined judicial interpretation of the employment agreement in this instance involved a question of mixed fact and law, reviewable on a deferential standard of palpable and overriding error (at para. 27).

Justice C.B. Thompson determined Mr. Plotnikoff’s employment agreement was not a standard form contract, of whose interpretation would be subject to a standard of review of correctness. Additionally, no submissions were made in respect to “how” the Trial Judge interpreted the termination clause, such submissions of which could have argued the Trial Judge made an error in applying the applicable law in interpreting the termination clause. The Court noted errors in applying relevant legal principles of interpretation, failing to consider a required element of a legal test, or any other extricable questions of law, would necessitate a standard of review of correctness.

Review of Trial Judge’s Decision in Interpreting Termination Clause

The Court noted this appears to be the first reported decision in Alberta dealing with a termination clause seemingly providing an employer with ultimate discretion regarding an employee’s right to common law reasonable notice. As employment contracts are presumed to have an implied term requiring an employer to provide reasonable common law notice of dismissal upon termination without cause (para. 34), language negating this presumption must be “clear and unambiguous” to be effective (para. 35).

Justice C.B. Thompson was explicit in stating the test outlined in the decisions of Holm v AGAT Laboratories Ltd., 2018 ABCA 23, and Bryant v. Parkland School Division, 2022 ABCA 220, is the binding test in Alberta in determining the enforceability of termination clauses in employment contracts (at para. 49), which requires an enforceable employment contract must contain clear and unequivocal language to extinguish or limit an employee’s common law rights.

My Two Cents

In my view, this decision hinged on the employer’s apparent discretion in providing common law reasonable notice. Should the employment agreement have provided any specified period of notice (equal to, or greater than, the minimums required by the Alberta Employment Standards Code), albeit, without any mention of an employer’s discretion to provide additional notice, this termination clause would most likely have been enforceable (subject to my comments below).

In my view, there are seemingly inconsistent decisions in Alberta regarding the interpretation of termination clauses, most notably in interpreting such clauses seeking to limit or extinguish employee rights to common law reasonable notice. Judicial clarity in this regard would be most helpful in resolving such disputes.

This interpretation is consistent with the Bryant decision noted above, which involved a termination clause stating: “…upon giving the Employee sixty (60) days or more written notice.” (at para. 4). The Alberta Court of Appeal in Bryant did acknowledge the possibility for a termination clause to effectively provide an employer with discretion in respect of providing common law reasonable notice, and this principle was affirmed in the decision at bar.

At the end of the day, employers are rolling the dice in attempting to contractually enshrine absolute discretion in respect of employees’ common law reasonable notice entitlement (beyond any applicable statutory minimums). Despite the termination clause in this instance stating “…such additional notice as the Company, in its sole discretion, may provide…”, the Court found such language to be insufficiently clear in limiting the employee’s entitlement to common law reasonable notice. An employer may attempt to draft more verbose termination clauses providing the employer with such discretion, however in my view, such discretion does not appear to find favour with the Courts.

In my view, this approach is consistent with foundational principles of contractual interpretation. Parties entering into an agreement ought to know the terms of the agreement. Termination clauses seeking to provide an employer with discretion in respect of an employee’s right to common law reasonable notice ought to include, at minimum, explicit mention of this right, and that it is being lost by the employee agreeing to the terms of the agreement.

Indeed, Justice C.B. Thompson highlighted the termination clause at issue in the decision of Nutting v Franklin Templeton Investments Corp, 2016 ABQB 669, which stated:

The provision of such notice or pay in lieu of notice, benefits and severance pay constitutes full and final satisfaction of all rights or entitlements which you may have arising from or related to the termination of your employment (including notice, pay in lieu of notice, severance pay, etc.), whether pursuant to contract, common law [emphasis added], statute or otherwise.

In my view, this approach is consistent with the spirit of the Supreme Court of Canada decision of Matthews v Ocean Nutrition Canada Ltd, 2020 SCC 26. In this decision, the Supreme Court affirmed the general principle that any provision of an employment agreement that purports to limit an employee’s right to common law reasonable notice must be clear and unambiguous (at para. 65). Further, the Supreme Court of Canada went further, stating “it may also be appropriate in certain cases to examine whether the clauses purporting to limit or take away an employee’s common law right were adequately brought to the employee’s attention” (at para. 76).

Ultimately, employment contracts create relationships of trust, and this trust is meant to go both ways. It is sound public policy that an employer attempting to limit employees’ rights to common law reasonable notice ought to be forthright in doing so. Overarching legal principles such as those discussed in this article are largely unknown to most workers. In signing an employment agreement limiting common law rights, the employee should understand what they are giving up, as such rights could be worth thousands, and potentially hundreds of thousands, of dollars come termination.

Employers attempting to play sneaky games with termination clauses will ultimately get the employees, the loyalty, and the lawsuits, they deserve.

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