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BCCA Pumps the Brakes on Application of Rosas v. Toca to Employment Contract Variations

By Ryley Mennie + Stephen Pederson - February 13, 2020 under Business Advisory

Case Review: Quach v Mitrux Services Ltd., 2020 BCCA 25

Recently, the BC Court of Appeal commented on several foundational issues that arise in wrongful dismissal litigation.  Particularly, the following are of interest to employers:

  1. the enforceability of a new or varied employment contract;
  2. when a dismissed employee may succeed with a claim for aggravated damages; and
  3. when an employer is entitled to the benefit of a dismissed employee’s mitigation earnings in cases of a fixed term contract.

Background

The basic facts in the Quach decision were as follows:

  1. On August 25, 2015, the plaintiff and prospective employee, Tri Quach, signed an employment contract (“Contract 1”) with the defendant and prospective employer, Mitrux Services Ltd. (“Mitrux”).
  2. Contract 1 provided for a term of employment of one year starting October 1, 2015, at a salary of $138,000, and specifically stated that if Mitrux terminated Quach without cause before the end of the term, it would pay him out the remainder of the term within two weeks.
  3. On September 28, 2015, after Quach had taken steps to leave secure employment, Mitrux required Quach to sign a second contract titled “Employment Agreement and Contract Waiver” (“Contract 2”), which purported to replace Contract 1 and was based on a month-to-month agreement and a four week termination clause.
  4. As “consideration” (discussed below) for Quach’s agreement to cancel Contract 1, Contract 2 included a clause stating that Mitrux would “waive the probationary requirements as set out by the Labour Standards of BC and will adhere strictly to the terms of Termination of Employment”.
  5. Quach signed Contract 2 and, two days later (September 30, 2015, the day before Quach was scheduled to commence work), Mitrux terminated Quach’s employment.
  6. Quach found alternative employment soon after termination, but sued Mitrux for his full year of salary under Contract 1.

The trial judge ruled in Quach’s favour on his entitlement to a year of salary under Contract 1, and further ordered Mitrux to pay aggravated damages, based on Mitrux’s bad faith termination.  Mitrux appealed.

Issues on Appeal

On appeal, the Court considered whether:

  1. there was consideration for Contract 2 so as to make it enforceable and limit Quach’s damages; and
  2. Quach was entitled to aggravated damages;

Notably, while not an issue raised on appeal, the Court also discussed the trial judge’s finding that Mitrux was not entitled to a reduction of damages for pay in lieu of notice based on the income Quach earned after the termination.

Consideration

The Court provides some analysis of the application of Rosas v Toca, 2018 BCCA 191 to employment law cases.  Rosas was a non-employment decision that relied, in part, on employment-related case law in creating an “incremental evolution” in the law of contract.  The Court removed the need for “consideration” (i.e. something of value exchanged between parties to make a contract enforceable), in “going transaction” relationships.  Chief Justice Bauman held in Rosas:

183…When parties to a contract agree to vary its terms, the variation should be enforceable without fresh consideration, absent duress, unconscionability, or other public policy concerns, which would render an otherwise valid term unenforceable. A variation supported by valid consideration may continue to be enforceable for that reason, but a lack of fresh consideration will no longer be determinative.

The employment relationship is one of the most universal “going transaction” relationships: it is usually longer-term, with daily or weekly obligations and is often faced with changing circumstances.  Rosas’ removal of the need for consideration to vary a “going transaction” relationship was welcomed by employers as potentially simplifying the process of adapting to naturally changing circumstances inherent in the employment relationship.  However, it has yet to be applied directly to an employment case.

Examining whether there was a need for consideration for Contract 2, the Court compared Rosas against an older decision written by the previous Chief Justice: Singh v Empire Life Ins. Co, 2002 BCCA 452.  Singh stands for the principle, arguably changed by Rosas, that “continued employment, without more, does not amount to consideration” for a new or varied contract with less advantageous terms to the employee.

In considering the competing principles of Singh and Rosas, the Court pumps the brakes on the application of Rosas to employment cases, finding that it “may not change the authority of Singh in the nuanced world of employer and employee contractual relationships”.  Ultimately, however, the Court left the question for another day, finding that Contract 2 “presents much more than a Rosas-style variation”, in that it provides for the “cancellation” of Contract 1, and accordingly, must be supported by consideration.  The Court found that Mitrux’ agreement to “waive” probationary requirements under BC employment standards legislation provided no actual contractual benefit to Quach. Consequently, Contract 1 governed.

Aggravated Damages

Dismissed employees claiming wrongful dismissal often claim aggravated damages when pursuing litigation against their former employers.  To obtain aggravated damages, a dismissed employee must prove bad faith treatment in the manner of dismissal, and demonstrate an actual injury resulting from that treatment beyond the “normal distress and hurt feelings” that arise from a loss of employment.  In appealing the trial judge’s order that Mitrux pay Quach $15,000 in aggravated damages, Mitrux only challenged the trial judge’s finding of injury.  The trial judge had found Quach suffered an injury based on his testimony of feeling “devastation” and that he “had a baby coming, financial obligations, in-laws moving to live at his home and no other source of income”.  In considering Mitrux’ appeal on this issue, the Court found that Quach’s “life circumstances” and his testimony of the effect of his termination, when weighed with other evidence, did not meet the second necessary component for an award of this “exceptional” remedy.

Mitigation

Quach addresses a significant issue that arises in almost every wrongful dismissal case – the former employee’s mitigation efforts and successes.  The leading authority in BC, Neilson v. Vancouver Hockey Club Ltd. (1988), 51 DLR (4th) 40, (BCCA), holds that an employer is entitled to the benefit of a former employee’s “avoided loss” (i.e. new compensation the dismissed employee earns after loss of employment), even in fixed term contracts.  In contrast, the Ontario Court of Appeal in Howard v Benson Group Inc. (The Benson Group Inc.), 2016 ONCA 256, has treated the early termination of a fixed term contract as giving the dismissed employee a claim for a “contractual amount” of damages, and that the former employee’s earnings are irrelevant.

While not an issue on appeal, the Court in Quach makes a point of commenting that BC is not following the Howard approach, and that Nielson’s deduction of post-termination earnings is still the appropriate approach – “absent a provision otherwise”.   As Contract 1 stipulated a contractual amount of damages for the remainder of the term if employment was terminated early, Quach was entitled to the full payment of one year’s salary, regardless of the fact he had obtained alternate employment soon after.

Notably, one issue not addressed by the Court is whether there is a duty on a dismissed employee to mitigate damages from a wrongful dismissal in the case of a fixed term contract. Follow us on Facebook and LinkedIn for further comment from us on other decisions in that context.

Employers – Pay Attention!

The Court’s decision in Quach is instructive and worthy of attention by employers for a number of reasons:

  1. Rosas has yet to be applied directly in employment-specific cases and reconciled with the principle from Singh. Quach provides further caution that approaching any contractual variation situation in the employment context without consideration is risky.
  2. The Court is continuing to send a message that aggravated damages in wrongful dismissal cases will be the exception and that a strong evidentiary basis of both bad faith and serious injury will be necessary to support an award.
  3. The Court confirms that BC will not follow Ontario’s “contractual amount” approach to fixed term contracts and that employers are entitled to apply a former employee’s mitigation earnings against a damage award in the case of a fixed term contract, “absent a provision otherwise”.

Want More?

If you or your business could use assistance properly implementing changes in your employment relationships, managing terminations effectively, or drafting contractual language to minimize liabilities, feel free to contact a member of our Workplace Law group: Ryley Mennie, Lou Poskitt, and Connor Levy.