U.S. parents typically expect their Canadian subsidiaries to follow their corporate policies. Unfortunately, the failure to "Canadianize" the policies can lead to unintended results, especially where the policies expressly state they do not create a contract of employment.
The recent Canadian court decision in Oliver v. Sure Grip Controls Inc. gives a stern reminder to U.S. parent companies operating in Canada, that things can be different north of the border.
Unlike in the "at-will" states in the U.S., the employment relationship in Canada is a contract and the terms of that contract govern the rights of the parties. One of the consequences of this difference is the need to implement policies in a manner which complies with contract principles so that they are enforceable. If the policies are introduced after the contract of employment has been created, an employer may need to provide "consideration" (value) to the employee to support their enforceability. The court is not supposed to assess whether the consideration is adequate; only whether it has been provided. However, experience suggests the greater the value of the consideration the less scrutiny it is likely to be put.
U.S. policies often expressly state that they do not create a contract of employment and the employment remains "at will". The use of a similar clause by one Canadian employer meant it could not rely on the provisions in its policies which sought to limit an employee's right to notice of termination or pay in lieu thereof upon termination of his employment without cause.
The Sure Grip decision examines this issue. Oliver was a 9 year management employee of Sure Grip Controls Inc. He had a written employment agreement but it did not deal with the termination of his employment. Five years after he started, Sure Grip introduced an employee handbook. At the time Oliver signed an acknowledgement that he had received, read and agreed to comply with it. The handbook addressed termination by suggesting Sure Grip would pay only one week's pay for every full year of employment. The handbook also stated, "I understand that the Sure Grip Controls Inc Management Team Handbook is not a contract of employment and should not be deemed as such."
In March 2011, in the context of a dispute over Oliver's entitlement to a profit sharing payment (which had been denied while Oliver was on medical leave due to a thyroid condition that required surgery) the company terminated him. Sure Grip took the position that Oliver's entitlement to pay in lieu of notice of termination was limited by the handbook to nine weeks. However, the trial judge found otherwise. She stated that while the parties could have made rights on termination a part of their written contract, the handbook clearly stated that it was not a contract of employment. Consequently, Oliver's entitlement was not limited to nine weeks' pay as suggested by the handbook. Instead he was entitled to damages based upon the common law principle of reasonable notice.
Oliver's damages were assessed at $87,684.00 based upon twelve months' wages and commissions.
This case should be of interest to any employer wishing to rely upon the terms of their policies. If the intention is to make the terms part of the contract of employment, the employer must take the steps necessary to ensure enforceability. Obtaining a signed acknowledgment of the handbook and its enforceability is often not enough. Even more importantly, a Canadian subsidiary adopting the "no contract" language of its "at-will" parent's policies will surely undermine the enforceability of the very policies with which the parent expects the subsidiary to comply. Alternatively, ensuring that the actual employment contract contains the provisions required to limit company liability can be a simpler and more reliable way to address these concerns.
Gowlings' team of employment and labour lawyers are experienced in helping U.S. parents and Canadian subsidiaries "Canadianize" their policies to ensure compliance and enforceability.
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.
