My partner, Joel Fairbrother, seized an important victory for his client while obtaining much-needed clarity on the law on the key principles of contractual interpretation in the recent Alberta Court of Appeal decision of Rice v Shell Global Solutions Canada Inc, 2021 ABCA 408.
Facts
Ms. Rice had been employed with Shell Global Solutions Canada Inc. (“Shell”) as a professional accountant under a series of employment contracts over the course of her career. In April 2016, she began a four-year assignment with one of Shell’s related entities. It was Ms. Rice’s understanding based on the offer letter she received and on Shell’s internal policies at the time that at the end of the four-year assignment term, she would be required to look for another position within Shell’s organization, and if no suitable position was available, her employment would end. Shell did not provide any clarity to Ms. Rice as to whether the “assignment” essentially formed a fixed-term contract, or she would automatically continue to be employed by Shell after it expired, even if she could not find an alternate position within the company.
Ms. Rice was subsequently given notice of termination by Shell. Shell offered Ms. Rice a severance package. Mr. Fairbrother, on behalf of Ms. Rice, took the position that Ms. Rice was actually on a fixed-term contract at the time of her dismissal, and as such was entitled to receive for breach of contract equivalent to the compensation she would have earned over the remaining 34.5 months under the contract, which is a much longer period than would be applicable if she were only entitled to reasonable notice severance.
Summary Trial Decision
The dispute between the parties was initially decided during a Summary Trial before Justice Eamon where there were a series of affidavits, and Ms. Rice and Shell’s Human Resources Manager provided additional oral evidence.
Justice Eamon noted that although indefinite term employment is typically implied under the common law where no termination clause is contained in a contract, the “four-year assignment” language in the contract showed an intention for Ms. Rice to be employed with Shell for at least four years under the assignment, with no guarantees of continued employment after. This intention was also supported by Shell’s “managed open resourcing process” at the time, which was designed to eliminate jobs and reduce unnecessary roles within its workforce by providing shorter term assignments, and then requiring employees to remain employed by competing for open roles. As such, Justice Eamon held that Ms. Rice had been working under the understanding of a definite duration of employment at the time of her termination from Shell, and that she was entitled to damages equivalent to what she would have earned over the remaining 34.5 months under the contract. Interestingly, he also found that had Shell waited until after the four-year assignment expired to terminate Ms. Rice she would have converted to an indefinite term employee, and then be entitled to reasonable notice under the common law.
Court of Appeal Decision
Shell appealed. At the Alberta Court of Appeal, Shell took the position that the Summary Trial judge erred in holding that Ms. Rice was essentially a fixed-term employee at the time of termination based on the ambiguity created by the contract, the parties’ employment relationship over the past 8.5 years, and the fact that Justice Eamon improperly relied on the subjective beliefs of the parties in interpreting the contract.
The Court of Appeal majority upheld Justice Eamon’s decision. In its reasons, the majority affirmed that contractual interpretation indeed requires an analysis of mixed fact and law issues. The words in the employment contract must be considered in light of the factual matrix that they are situated in (Rice, supra at para 18). As such, contractual interpretation is a fact-specific exercise aimed at uncovering the intentions of the parties, and a trial judge’s decision must be reviewed on the appellate standard of palpable and overriding error. This is an important restatement of the basic principles of contract interpretation, and the deference to be given to a trial judge in making findings of fact cannot be overstated.
While there was no termination provision in Ms. Rice’s 2016 employment offer letter, the Court of Appeal majority held (relying on reasoning from Ceccol v Ontario Gymnastics Federation) that contract interpretation is an exercise in uncovering the intentions of the parties. The absence of the termination provision in this case was not necessarily indicative of an indefinite term contract because in the surrounding circumstances it was clear to Ms. Rice and to Shell that at the end of the four-year assignment Ms. Rice would not automatically continue to be employed with Shell. She would have to compete for an open position within the company, and then be the successful candidate in order to continue her employment with Shell. Indeed, Ms. Rice had obtained her four-year assignment at the end of a two-year assignment at Shell through a similar process. Additionally, the Court of Appeal found that the absence of a termination clause meant there was no evidence of an on the part of either party that Ms. Rice’s employment could be terminated earlier than the four-year assignment end by providing reasonable notice.
Shell also attempted to argue that a fixed-term contract is something that requires clear, defined language, and that it is not something that can be implied if a contract is ambiguous. Shell took the position that the lack of termination clause in the contract could not be used as evidence to imply a fixed-term contract. Mr. Fairbrother took the opposite position and argued that under the principle of contra preforentum in the absence of clear language, a contract must be interpreted in a manner that is most favourable to the party that did not draft it – in this case, Ms. Rice. The Court of Appeal majority did not weigh in on the application of contra preforentum in this case. Instead it agreed with Justice Eamon’s assessment, that again, in light of all the surrounding circumstances and the evidence of the parties’ intentions, the lack of termination clause in the offer letter, coupled with the words “four-year assignment”, actually pointed towards a definite term of employment.
Shell further argued that the wording in the 2016 offer of employment was different than the words used in prior fixed-term contracts that Ms. Rice had entered into with Shell, and that as such, it was clear that Shell had not intended to create something like a fixed term with Ms. Rice in this case. The Court of Appeal held that Justice Eamon had not erred in concluding that different wording could have been used from Shell to signal an intention to create a definite term employment relationship with Ms. Rice in the 2016 offer of employment. Justice Eamon rightly stated that the words of the offer letter had to be interpreted in light of the surrounding circumstances, and the surrounding circumstances included the fact that Ms. Rice at the end of a similar short-term “assignment” had been required to apply for another position within Shell in order to maintain her employment.
The Court of Appeal concluded that it was proper for Justice Eamon to consider the factual matrix outside the words contained in the offer of employment, which necessarily included the subjective understanding of the parties, and then assess whether those subjective beliefs were reasonable in light of the surrounding circumstances and the relevant contractual documents. In the end, Justice Eamon’s judgment of damages equivalent to 34.5 months of compensation to Ms. Rice was upheld based on the words contained in the offer of employment, and the evidence provided during the Summary Trial that revealed the intentions of the parties.
My Take
This case highlights the importance of clear contractual drafting. The word “assignment” in Ms. Rice’s offer of employment was found to create something akin to a fixed-term contract, in part because Shell had not made it clear in the offer letter that the new role was simply an extension of an indefinite term employment agreement. Additionally, this case emphasizes the role of the surrounding circumstances, including company policies and mandates, and what an employee understands, in assisting the court in contractual interpretation. The four corners of an employment contract or offer letter simply do not tell the full story. Finally, from a procedural standpoint, this case also demonstrates the effectiveness of the Summary Trial process in dealing with claims centered on contractual interpretation. Although it is not an often used (or well understood) process, more counsel should avail themselves of it when it is clear that the central legal issues come down to contractual interpretation. Ms. Rice was able to save herself additional years of litigation (and fees) by proceeding on a summary basis.
A published coy of Rice v Shell, 2021 ABCA 408 can be found at the following link: https://www.canlii.org/en/ab/abca/doc/2021/2021abca408/2021abca408.html?autocompleteStr=rice%20v%20shell&autocompletePos=2
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