Verbal Contract of 5 Yr Term Chosen Over Later Written Term
Dornan v New Brunswick (Health), 2023 CanLII 10433 (NB LA), is a recent New Brunswick labour adjudicator decision involving a grievance filed by newly appointed president and CEO of Horizon Health Network for a 5-year term.
This case is interesting as it dealt with the enforceability of a termination clause in a written contract which was entered into following the commencement of the Grievors employment and which did not resemble the oral agreement made between the Grievor and his Employer prior to the commencement of the position.
The following are the pertinent facts of the grievance:
- The Griever employee had 35 years of experience as a clinical physician
- The Grievor was hired as an interim CEO for Horizon Health Network (the “Employer”) on August 25, 2021
- While in the interim CEO position, the Grievor applied for a permanent CEO position for the Employer
- On February 1, 2022, the Grievor was advised that he was a successful candidate for the permanent CEO position
- The Grievor then had numerous discussions with the Employer negotiating the terms of the permanent position, including his salary, benefits, car allowance, pension and the fact that his employment would be for 5 years (the “Oral Discussions”)
- On February 28, 2022, the Grievor was advised that he was being offered the permanent CEO position for a 5-year term
- On March 3, 2022, the Grievor received the following text message from the Deputy Minister of Health, Heidi Liston (“Liston”) regarding the permanent CEO position:
LISTON – Let me know when you have a moment. They are not able to add double pension at treasury per treasury board, and that came straight from Cheryl, but they would be willing to increase salary to 360k in place of that.
THE GRIEVOR – That with benefits, car allowance and 6 weeks holiday? We have a deal.
LISTON – Love it, it’s a go!
- The next day there were two press releases announcing the Grievor’s appointment to the permanent CEO position for 5 years
- At this time, no written employment contract was entered into between the Employer and Grievor, and the parties were still discussing some terms of the employment, such as the payment of his licensing fees
- On March 15, 2022, (one week after commencing his role) the Grievor asked his Employer for a written employment contract
- On March 23, 2022, the Grievor was provided with an offer of employment dated March 4, 2022 (the “Written Offer”)
- The Offer of Employment contained the following termination clause:
You may at your option, terminate this agreement at any time by giving the Minister ninety (90) days prior notice in writing. The Minister may terminate your employment under this agreement without cause subject to providing you with twelve (12) months’ severance pay in lieu of notice if terminated within the first year of this agreement, six (6) months in the second year, seven (7) months in the third year, eight (8) months in the fourth year and nine (9) months in the final year
(the “Termination Clause”).
- It is worth noting that the Employer made no mention of the Termination Clause during the Oral Discussions with the Grievor
- The Grievor stated that at the time he received the Written Offer, he felt vulnerable and that he had no other option but to sign it, as he had already given up his previous secure employment
- The Grievor signed the Written Offer on April 7, 2022, just over a month after the commencement of the permanent CEO position
- On July 7, 2022, there was as incident whereby an individual had passed away in one of the Employer’s Hospital Emergency Rooms (the “Emergency Room Incident”)
- On July 14, 2022, the Grievor was asked by New Brunswick’s, Minister of Health, to attend a news conference on July 15, 2022 (the “News Conference”). At this time the Grievor did not know the reason for the News Conference
- On July 15, 2022, the Grievor received a telephone call from the Premier, while on his way to the News Conference, whereby he was advised that he was “no longer employed”. The Grievor received a termination letter following the telephone call
- At the News Conference, the Premier addressed the Emergency Room Incident and advised the public that the Grievor had been removed from his position
- Following the Grievors termination the Employer attempted to invoke the Termination Clause and limit his severance to 12 months’ pay in lieu of notice
- On August 8, 2022 the Grievor filed a grievance in which he sought the following:
- Damages in the form of employment income and benefits from July 15, 2022 to March 5, 2027, representing the remaining value of my appointment but for GNB’s breach of my employment terms or, alternatively, such other relief as may be determined appropriate;
- A letter of reference; and
- Payment of legal and adjudication costs.
- The Employer argued that the Written Offer was enforceable, as such, the Termination Clause applied, and the Grievors severance was limited by it
Analysis / Conclusion
The main issue in this matter was whether the Oral Discussions formed an oral contract of employment or whether the Written Offer was enforceable. In the event the Written Offer was enforceable, whether or not the Grievor’s severance was limited by the Termination Clause.
The Adjudicator noted that the terms and conditions of one’s employment could be formed orally.
The Adjudicator held that the Oral Discussions formed the employment contract for the following reasons:
- During the Oral Discussions the Grievor and Employer agreed to a 5-year term CEO position with a March 7, 2022, commencement date;
- The Employer made an announcement to the public that the Grievor was the permanent CEO for the Employer for a 5-year term;
- The Oral Discussions encompassed the fundamental terms of a contract; there was an offer made by the Employer, an acceptance by the Grievor and consideration provided via compensation paid to the Grievor;
- The Termination Clause was a fundamental alteration to the Grievor’s employment, as such, it required fresh consideration for it to be enforceable;
- The Grievor may have understood the terms of the Termination Clause, however, in his mind he had no choice but to sign it. The Grievor also provided evidence that had the Termination Clause been involved in the Oral Discussions, he would not have accepted the position; and
- There was no offer or suggestion for the Grievor to seek independent legal advice or any explanation for the additional clause.
In light of the above, the Termination Clause was held to be unenforceable and the Grievor was entitled to lost salary, and benefits such as; car allowance, pension and lost health and dental benefits for the remainder of his 5-year term.
In addition to severance, the Grievor was also awarded $200,000, in aggravated damages as the Adjudicator held that the Employer had terminated the Grievor in a “public, disingenuous and callous manner”, in doing so, breached its implied obligation to act in good faith, when it engaged in the following conduct:
- The manner in which the Grievor was terminated. He was terminated in a public manner, which negatively impacted his stellar reputation. Additionally, a reasonable person could conclude following the News Conference that the Grievor was responsible for Emergency Room Incident;
- The Employer failed to meet with the Grievor in private to discuss his termination; and
- The Grievor was not provide with the opportunity to address the Employers concerns.
This case is important as it serves as a reminder for both employers and employees, that verbal agreements in relation to one’s employment can form legally enforceable employment contracts.
Additionally, the importance of fresh consideration to be provided to employee’s when an employer changes fundamental terms of their employment. Failure to provide fresh consideration can be detrimental to employers who wish to rely on the changes.
Lastly, the aggravated damages award in the present case demonstrates adjudicators willingness to award damage against employers for the manner in which they terminate employees and the price employers can pay as a direct result of their conduct. Prior to termination, employers should think about the reasons for terminating an employee and manner in which they conduct themselves during the termination.
Bow River Law provides these regular legal blog articles for the purposes of legal education and research for the public and the legal profession. These articles should be considered general information and not legal advice. If you have a legal problem, you should speak to a lawyer directly.
Amanda Jacinto is an employment and labour lawyer at Bow River Law in Calgary.
Scheffler v Mourtis Trucking Ltd., 2023 ABKB 139 is a case where an Alberta court allowed an overtime claim to stretch back further than 6 months
In Alayew v Council for Advancement of African Canadians, 2023 ABKB 113, an employer fired without cause and was not allowed to change its mind