A recent decision from Alberta highlights the duty of employers to act in good faith. As discovered by Nexen, an international oil and gas company, the consequences for a failure to do so can be costly.

Background

Hans Jonasson was 59 and had been employed for 22 years with Nexen and its predecessor. He was contemplating retirement or taking a leave of absence. After discussions with the HR Department, he decided to take a seven month leave of absence with the understanding that there was no guarantee a job would be waiting for him when he returned.

His leave of absence agreement with Nexen stated the company would “make reasonable efforts” to find suitable employment for him upon Mr. Jonasson’s return. If no suitable role was found after reasonable efforts were made or if he declined a suitable role, the agreement permitted Nexen to consider him to have resigned and he would not be eligible for any notice, severance or termination pay.

Nexen’s Internal Activities

Prior to entering into the Leave Agreement however, senior officers at Nexen began identifying potential positions to eliminate, including Mr. Jonasson’s. Yet while the company knew it would be making significant cuts to the workforce, it did not disclose this information to him.

In fact, Nexen was intentionally secretive right up until the month prior to Mr. Jonasson’s planned return when he was informed that there was no position for him and the company was treating him as a deemed to have resigned under the Leave Agreement.

Resignations & The Law

For a resignation to be enforceable, it must be voluntary and unambiguous. While Mr. Jonasson was aware that he could be deemed to resign under the Leave Agreement, he did not enter into the Leave Agreement fully informed.

In addition, while Nexen may have acted reasonably within its own understanding of looking for a suitable role for Mr. Jonasson, it was not acting within his reasonable expectations given that he was unaware significant cuts were going to be made to the workforce.

Good Faith & Terminations

Good faith has been described by the Supreme Court of Canada as being “honest, reasonable, candid and forthright”. Agreements in the employment context are not treated the same as in a commercial context as there is a presumed power imbalance in favour of the employer. As the employee is in a more vulnerable position, the employer is expected to fully inform the employee of all material facts that could impact their risk assessment before entering into an agreement and to act in a manner consistent with both parties’ understanding of the terms.

Similar to Alberta, British Columbia law includes minimum standards for employment relationships including that employees are entitled to notice or pay in lieu of notice if terminated without cause. If a term of an employment agreement violates the Employment Standards Act, a court will not enforce it.

In this case, the Leave Agreement included that if Mr. Jonasson was deemed to resign he would receive no notice or pay in lieu of notice. Where an employee has been “deemed to resign” against their will, it would be equivalent to a termination without cause. This term could not be enforced as it would allow Nexen to avoid its statutory obligations.

Ruling

The court found the Leave Agreement was not enforceable because Nexen failed to make reasonable efforts to find Mr. Jonasson a suitable position and did not enter into the Leave Agreement in good faith. As a result, he was entitled to damages and was awarded 23 months of pay in lieu of notice plus $20,000 as punitive damages due to the “outrageous degree of negligence” displayed by the company in its treatment of him.

Employers: be honest, reasonable, candid and forthright when terminating employees and obtain legal advice before entering into agreements to ensure you are complying with your legal obligations. We can help with that.

Employees: it is always best to obtain independent legal advice prior to signing an agreement, however an agreement is not necessarily binding just because you signed it. A lawyer can also assist in assessing the enforceability of a signed agreement. We can help with that.