Canada: Oral Contracts, Fixed Term Contracts, And A Winter In Mexico: Key Lessons For Employers

A recent decision of the Supreme Court of British Columbia has provided one employer with a useful reminder on employment contracts and sheds light on what it means to mitigate damages in the digital age.

In James v. The Hollypark Organization Inc., 2016 BCSC 495, the defendant company, The Hollypark Organization Inc. ("Hollypark"), was run by a young entrepreneur named Mr. Dhillon, who was 25 years old. Hollypark wanted to open a new hotel in Vernon B.C. under the Marriott franchise. In order to start up the hotel, Hollypark required a general manager with experience in the hotel industry and, if possible, familiarity with the Marriott brand. The plaintiff, Ms. James, was a good fit.

Hollypark hired Ms. James in 2012. However, an important fact – and one with significant consequence in this case – was that the two parties never entered into a formal written contract.

For over a year Ms. James worked to help set up the new hotel, which opened in July 2013. One month later, Ms. James was terminated. She sued Hollypark, claiming the two parties had agreed Ms. James would continue working at the hotel for the first year after it opened. Hollypark denied such an agreement ever existed. Even if one did exist, Hollypark claimed Ms. James failed to mitigate her damages when she chose to fly to Mexico and spend the entire winter there.

The Court was presented with a difficult task. Not only did Ms. James claim there was an agreement for a one year term, she argued it was completely oral. On this point, the Court held it was indeed possible that an employment contract could be made orally and for a fixed term, provided that both parties had a clear intention to create such an agreement. In addition, the Court held that a reasonable outsider would also have to conclude that a fixed term agreement existed based on the evidence of the parties' conversations.

In this case, the key interpretive tool used to understand contracts – a written agreement – did not exist. Evidence had to come from other sources and because of this the Court agreed "...there is greater flexibility in the nature of the evidence that is admissible..." Indeed, the Court considered a wide range of evidence – some fairly atypical – including:

  • Mr. Dhillon's young age and lack of training in the Marriott brand;
  • the fact that Ms. James committed to a one year lease on a home in Vernon; and
  • even the fact that Ms. James ordered a large number of business cards (500 in total) describing her as a general manager.

Taken together, the Court found that the evidence was consistent with a one year contract which started the day the hotel opened. Because Ms. James was terminated one month into the contract, Hollypark was liable for her salary for the remaining 11 months.

Finally, the Court found that even though she moved to Mexico for the winter, Ms. James did not fail to mitigate her damages. While there, she searched for jobs online, continued networking with contacts in the industry, and became involved in a venture with another individual back in Canada. Notably, "[i]n today's world," the Court advised, "a person can reach out to contacts and search for jobs from a variety of locations." Hollypark could not use the bare fact that Ms. James left the country as proof that she failed to mitigate.


Those familiar with employment law principles will find the above comments on mitigation instructive. The courts recognize that in this digital age, dismissed employees can mitigate their loss by networking, applying for jobs – even interviewing – remotely. The burden lies with an employer to prove a failure to mitigate and employers can no longer rely on a trip overseas or, in this case a winter in Mexico, as conclusive proof.

Those less familiar with employment law principles will learn several lessons from Hollypark. Some employers are surprised to hear that in cases of fixed term contracts, the concept of reasonable notice does not apply. Instead, in these cases, a dismissed employee will generally be entitled to the unexpired portion of the contract; the longer the term of the contract, the greater the potential liability. Second and more importantly, whether fixed term or indefinite, part-time or full-time, it is crucial that employers put their agreements in writing. A well-drafted employment agreement will remove ambiguity and reduce exposure. Those who base their employment relationships on oral contracts may one day find themselves counting business cards.

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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