A recent BC Supreme Court decision rendered that potential errors in termination letters could lead to having cost consequences to the employer. It also went over the consideration requirements needed when amending or introducing contracts for existing employees.

In Moffatt v. Prospera Credit Union, 2021 BCSC 2463, an employee of 22 months’ service who occupied no managerial role was terminated of her employment. In the termination meeting, the employee was presented with a termination letter and a proposed Release, which reduced her entitlements but increased her obligations, both to the significant detriment of the dismissed employee and benefit of the employer, had the employee signed it. The termination read in part:

Pursuant to your employment contract with Prospera…and in accordance with the BC Employment Standards Act, Prospera will pay you a lump sum of $1,374.28…which is equivalent to 2 weeks of your pay as termination pay. Prospera will also pay you a gratuitous lump sum payment of $206.14, less required deductions, which is equivalent to 15% of your termination pay in lieu of benefits.

The letter also advised the employee, “[y]ou are required to sign this letter and the full and general release (“Release”) attached to this letter…”. The termination letter further stipulated that “under your employment contract with Prospera you must not for 12 months following the end or your employment, solicit Prospera’s clients, employees and contractors.”

At the meeting, the employee was visibly upset and cried profusely. No opportunity to calm down was provided but she was required to collect her things and leave immediately. She was then escorted across the branch where the meeting occurred, in full view of other employees and members of the public, while crying and attempting to shield her face with the termination letter.

Consideration

The employee in this case commenced casual employment with the employer in 2018, then was offered a part-time position in 2019 with a contract (the “Part-Time Contract”), and then a full-time position in 2020 with another contract (“the Full-Time Contract”). The parties’ positions differed concerning the enforceability of these contracts.

The Court stated the relevant legal principles as follows:

[38] An amendment to an employment contract must provide a benefit to both parties. Continued employment alone is not enough to constitute consideration for termination clauses … Something more is required in the form of forbearance or some other benefit or incentive to the employee.

[39] In Singh v. Empire Life Insurance Co., 2002 BCCA 452 the Court of Appeal found that where there was no promotion, new job opportunity, or other advantage offered to the plaintiff, other than continued employment, there was no fresh consideration and the modified employment contract at issue was unenforceable. The Court affirmed the general principle that modification of a pre-existing contract will not be enforced unless there is further benefit to both parties: at para. 15. The need for consideration reflects the vulnerability of an employee dependent on their continued employment who has an inequality of bargaining power when an employer amends an existing employment contract: Hobbs v. TDI Canada Ltd., 2004 CanLII 44783, at para. 42, 246 D.L.R. (4th) 43 (O.N.C.A.).

…

[41] This Court in Krieser v. Active Chemicals Ltd., 2005 BCSC 1370 [Krieser], set out the three steps of analysis to determine if there is a fresh consideration element required when an employment contract is amended, at para. 24:

First, did the Contract contain new terms which were detrimental to the plaintiff? Second, if it did, what is required at law to provide adequate consideration for such changes to the employment relationship? Third, has the defendant established adequate consideration on the facts here?

[42] If an employer wishes to amend an employment contract, it has generally been held that fresh consideration is required in the form of a benefit to both parties. In the absence of a benefit, the contract will be unenforceable for lack of consideration.

[43] In applying the test to the facts in Krieser, Justice Neilson (as she then was) found that introducing new terms that were detrimental to the employee in the form of new termination provisions and anti-competition clauses activated the first step. Second, the intention of the employer that the employee would be terminated if he refused to sign the new contract for an unknown employment period was not enough of a benefit to the employee. An added benefit, such as greater security of employment through forbearance for a specified time, or a new term beneficial to the employee, would be adequate consideration. Third, there was nothing in the contract that conferred a benefit to the employee. There was no increase in job security, the employee was still a probationary employee, and the termination provision, while more generous than the Employment Standards Act, R.S.B.C. 1996, c. 113 during the employee’s probation, would not be advantageous when he passed his probationary period: Krieser, at paras. 25, 32, 35.

Applying the foregoing to this case, the Court ruled that a more restrictive termination clause in the temporary Full-Time Contract was not enforceable due to lack of fresh consideration: the switch from part-time to full-time was only temporary and provided no real benefit to the employee.

The Full-Time Contract included the phrase that “either party may end this agreement with one weeks’ notice” and that “[a]t the end of this term position, you will return to your own or a comparable position”. Finding inconsistencies between the Part-Time and Full-Time Contracts, the Court upheld the most reasonable reading, that the Part-Time Contract, the original contract, remained in place, despite the temporary reassignment under the Full-Time Contract. While the Full-Time Contract temporarily altered the employee’s position, it was held that the Part-Time Contract continued. Further, the Court noted that, for practical purposes, the employee’s salary and hours of work remained relatively the same. 

Damages

Aggravated Damages

Having first awarded three (3) months’ notice to the employee for her dismissal, the Court discussed damages relating to the manner of dismissal. The Court considered the claim regarding manner of dismissal under aggravated damages and the claim for damages regarding the termination letter errors under punitive damages.

The Court provided that an employee seeking to recover aggravated damages must establish two conditions: (1) the employer has breached its duty of good faith and fair dealing in the manner of dismissal, where examples of conduct that may constitute a breach of the employer’s duty of good faith and fair dealing include being untruthful, misleading or unduly insensitive in the course of dismissal, or attacking the employee’s reputation with declarations made at the time of dismissal, and (2) the employee suffered compensable damages as a result of the breach, which requires an employee to prove that something beyond the normal distress and hurt feelings that invariably accompany the loss of employment occurred.

In Hrynkiw v. Central City Brewers & Distillers Ltd., 2020 BCSC 1640, the employee corroborated his claim of mental distress through his family doctor and his wife. His employer had accused him of misconduct, leaving him devastated and humiliated, especially considering that acts of dishonesty and fraud could have professional impacts on his career as a Chartered Accountant. The Court awarded aggravated damages for the manner of dismissal.

In Sifton v. Wheaton Pontiac Buick GMC (Nanaimo Ltd.), 2010 BCSC 353, an employee who was constructively dismissed claimed that his employer spoke to him in a manner that caused him mental distress. The Court found that, while the employer was assertive and perhaps could have handled the situation better, the employer was not intimidating the employee. The Court dismissed the claim of mental distress in the manner of dismissal. It was noted that conduct can be insensitive but not amount to “unduly insensitive”.

Considering the foregoing and other cases, the Court found that the employee was no doubt distraught and humiliated by her sudden termination, and by the fact that she had to exit in front of customers; however, this did not rise to the level of public humiliation that would warrant aggravated damages.

Punitive Damages

In contrast to aggravated damages, which are compensatory in nature, punitive damages are restricted to advertent wrongful acts that are so malicious or outrageous that they are deserving of punishment on their own. The goals of punitive damages include deterrence and denunciation.

The termination letter at issue in this case contained errors, including the following:

• the notice offered to the employer consisted of two (2) weeks’ pay in accordance with the Employment Standards Act, rather than payment consistent with either the full-time contract (one (1) month) or the part-time contract (determined under standards similar to the common law);
• a lump-sum payment of $206.14 was offered, less deductions, which was identified as a “gratuitous lump sum payment…equivalent to 15% of your termination pay in lieu of benefits”; and
  
• it provided a non-solicitation provision restraining the Plaintiff from soliciting the Defendant’s business for a period of 12 months, rather than the six (6) months provided for within the part-time and full-time contracts.
  

The Court noted that these errors would have limited the employee’s entitlements and increased her obligations. By contrast, the employer stood to benefit from the misleading errors contained in the termination letter. Further, had the employee signed the termination letter as presented she would have released her legal claims against the employer.

The Court discussed:

[99] The two weeks pay in lieu of notice listed in the termination letter was less than the one month the Plaintiff was entitled to under the Full-Time Contract (if that contract applied), or the notice commensurate with the Plaintiff’s “age, tenure, position and employment opportunities” set out in the Part-Time Contract (and which this Court has held to be three months’ notice in the circumstances). The gratuitous lump sum payment was in fact less than the amounts that the Defendant owed the Plaintiff under either the Full- or Part-Time contract. The wording of the termination letter suggested that the Defendant was offering the Plaintiff a kindness (a gratuitous payment). The termination letter asserted that the Plaintiff was “required” to sign it. Finally, the termination letter imposed a non-solicitation period of 12 months, when both the Part- and Full-Time Contracts each contained only a six month non solicitation period.

The employer posited that it was not deliberately dishonest and misleading in the termination letter, that it was not designed in bad faith to mislead the employee. The employer further pointed out that it was willing to correct the errors as soon as the employee’s lawyer pointed them out.

While the Court noted that the employer was processing over 100 termination packages for reorganized employees, it stated:

[101] The volume of termination letters an employer issues does not lessen the obligation to ensure they are correct. There is no volume discount on correctness for termination letters.

…

[104] The Defendant was undertaking a large number of terminations in a short time period. However, there is an obligation on an employer terminating an employee in such circumstances to act in good faith and reasonably. A “cookie cutter” termination letter drafted without regard to the individual circumstances of each employee falls short of the standard required.

[105] The Defendant argues that the errors in the termination letter were not reprehensible, vindictive, malicious, harsh, high-handed, and egregiously objectionable, and further, that the errors were inadvertent. The Defendant accepted and corrected the errors as soon as the Plaintiff retained legal counsel who pointed those errors out.

[106] The Defendant’s argument highlights the crux of the problem. In this instance, the Plaintiff hired a lawyer. Had she not, these errors may not have been discovered and corrected. Given the circumstances of a termination, and its highly emotionally charged nature, it is equally as likely that the Plaintiff, or others in her position, could have simply signed the termination letter.

[107] This is a situation concerning recently terminated employees who are potentially significantly vulnerable, and in distress. The Defendant’s lack of attention to detail in the termination letter, especially where the errors fall so clearly in their favour, is unacceptable, and draws an award of punitive damages.

[108]   I award the equivalent of two-and-one-half months’ salary to the Plaintiff in punitive damages for the errors in the termination letter. This is the amount that the Plaintiff would have lost had she signed the erroneous termination letter as presented.

The employer’s errors in the termination letter could have resulted in the employee signing away entitlement to additional notice, doubling the period of her non-solicitation prohibition, and releasing all claims against the employer. Had the employee not consulted a lawyer, her rights may have been significantly impacted. In view of the circumstances, 2.5 months’ award in punitive damages was granted.

Takeaways

This case serves as a good reminder for Employers to treat employment contracts and terminations very seriously.

Our first takeaway is to keep in mind that in order to amend existing employment contract, you need to provide fresh consideration.

Second, when it comes to termination letters, act in good faith and honestly, and respect the terms of existing contracts. In this case, the termination letter didn’t match the terms of the employment contract, and this error led to an additional 2.5 months’ award against the Employer, for a total of 5.5 months’ award (instead of 3 months otherwise).

An important takeaway is to always get advice from experienced professionals specific to your circumstances and your employees when amending and implementing employment contracts or planning a termination.

Note to our Readers: This is not legal advice. If you are looking for legal advice in relation to a particular matter, please contact our Employment & Labour Group.