Canada: Executive With "At Will" Contract Working For Canadian Subsidiary, Entitled To Notice Of Termination

The British Columbia Court of Appeal, overturning a Supreme Court Judge's decision, held that an executive with an "at will" employment contract with a US company was also an employee of the Canadian subsidiary, and was therefore entitled to reasonable notice of termination in accordance with Canadian law. The "at will" employment agreement was unenforceable as it constituted an invalid attempt to contract out of Employment Standards legislation. The employee was therefore entitled to reasonable notice of termination at common law.

This decision provides a strong reminder to US companies doing business in Canada, that employment agreements must be carefully drafted to avoid running afoul of Canadian legislation or triggering an obligation to provide reasonable notice of termination (or incur significant damages for failure to do so).

In Stanley v. Advertising Directory Solutions Inc. and Verison Information Services Inc. (August 16, 2012), the Court of Appeal held that the plaintiff's "at will" employment contract with the US company, Verison Information Services Inc., was invalid as the plaintiff was also employed by the Canadian subsidiary, Advertising Directory Solutions Inc. Because the employment agreement did not meet the minimum standards of the Employment Standards Act, the plaintiff was entitled to reasonable notice of termination at common law. In Canada, such notice can range up to two years, depending on the employee's length of service, age, position with the company, and the likelihood of obtaining comparable replacement employment. Damages are awarded on a total compensation basis where reasonable notice is not provided.

The plaintiff, Stanley, was originally employed with the Canadian company. It was subsequently acquired by Verison and Ms. Stanley was offered employment with the US parent. She entered into an "at will" employment agreement as Director- International Finance. The employment agreement provided for her "assignment in Canada", working with the Canadian subsidiary.

Upon taking up her duties in Canada, Ms. Stanley was put on the subsidiary's payroll and paid in Canadian funds, with her salary adjusted for the exchange rate and tax implications. Verison argued that this arrangement was for administrative convenience only. Ms. Stanley was enrolled in the Dominion pension plan and benefits plans. She was terminated from her employment when Verison sold the shares of Dominion to an affiliate of Bain Capital. She rejected an offer of severance and sued for wrongful dismissal.

The trial judge dismissed the claim holding that for the purposes of salary, entitlement to short term incentives and notice of termination, the parties had agreed that the plaintiff would be treated as an employee of Verison, but that for other purposes she was employed by Dominion. The Court of Appeal rejected that analysis and held that an employee may be employed by more than one employer, who might both be liable for wrongful dismissal. It was not necessary, said the court, to determine whether Ms. Stanley was an employee of Verison because on the evidence she was an employee of Dominion as defined in the Employment Standards Act: "a person... entitled to wages for work performed for another". That being so, she was entitled to the minimum notice requirements of the Employment Standards Act (which in British Columbia scales up from two weeks to eight weeks of notice). Because her "at will" employment agreement was inconsistent with the legislation and therefore void, she was entitled to reasonable notice at common law.

The Court held that the proper consideration was not the employment agreement detailing the terms of her assignment to Canada, but rather her relationship with the Canadian subsidiary. The issue was whether she was employed by Dominion within the meaning of the Employment Standards legislation. Because the court answered that question affirmatively, the plaintiff was entitled to reasonable notice at common law (referred back to the trial judge for assessment) as the attempt to contract out of minimum notice by agreeing to "at will" employment was invalid. The plaintiff was also entitled to a declaration that stock options which formed part of her compensation would expire 5 years after the notice period rather than from the date of termination.

US employers who assign employees to work in Canada must consider whether they are establishing an employment relationship with the Canadian subsidiary and, if so, ensure that agreements are in compliance with minimum standards legislation.

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.

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