Employment Contracts: Leave No Room for Interpretation!
June 2022 - 5 min read
What You Need To Know
In the case of Rice v Shell Global Solutions Canada Inc, the majority of the Alberta Court of Appeal emphasized the importance of clearly identifying the term of an employment contract and the parties’ obligations and entitlements on termination.
This case is an important reminder to parties to be diligent when drafting, negotiating, or entering into employment contracts. While the beginning of an employment relationship is a time of excitement and positivity, it is essential to contemplate the core terms of the contract, such as the length of employment as well as what the parties intend to occur if the relationship must come to an end. Significantly, as indicated in this case, it is also important for parties to step back and consider whether the language of the contract clearly reflects their intentions.
Rice was a professional accountant employed by Shell for a total of 8.5 years when Shell terminated her employment without cause. Over the 8.5 years, Rice worked under fixed-term contracts and then moved to a "conventional" employment contract, i.e., a full-time indefinite term contract. About five years later, in March 2016, Shell reorganized the workplace, eliminating numerous positions; employees were required to re-apply and compete for the remaining jobs. Rice re-applied and successfully competed for the position she was in before the reorganization. Shell provided Rice with an offer letter that included, among other things, the position title, work location, and the statement "Your Assignment Length will be: 4 years". The letter did not contain any provisions dealing with termination of employment, and Shell did not provide Rice with a contract or letter of intent further outlining the terms and conditions of her employment.
When Shell terminated Rice's employment without cause just over a year later in May 2017, they took the position that Rice was under an indefinite term contract. It proposed to pay Rice 15 months' wages based on the common law principles of reasonable notice. However, Rice argued that she was employed under a 4-year fixed-term contract. This is significant because under a fixed-term contract, an employee will generally be entitled to remuneration for the remainder of the term; in Rice's case, this amounted to wages for nearly three years.
What the Courts Said
Following a summary trial, the Justice of the Court of Queen's Bench determined that while there is a legal presumption that employment contracts are for an indefinite term, the wording in Rice's offer letter could not be ignored. The contract was found to be a hybrid of a fixed-term and indefinite-term contract: a fixed-term contract for four years, following which it would automatically convert into an indefinite-term contract. Because Rice's employment was terminated before the four-year term, the trial judge found she was entitled to damages to reflect the remainder of the four-year term (i.e. nearly three years).
Shell appealed the decision to the Alberta Court of Appeal, where the majority of the Court upheld the trial decision.
Although the issue was argued before it, the majority of the Court of Appeal found it was not necessary to deal with the suggestion that only clear and unambiguous contract language will rebut the presumption that employment contracts are for an indefinite term and terminable only on reasonable notice. Instead, the focus is on determining the parties' intentions and reasonable expectations regarding the termination of the contract at the time it was entered into and giving effect to these intentions.
In examining this issue, the majority acknowledged that there was evidence that "could reasonably be found to rebut the presumption of indefinite employment" – namely, the offer letter indicated a project-based contract with a duration that corresponded to Shell's requirement for Rice's services for the project and the work was in a remote location where Rice would not have otherwise lived. However, more persuasive in indicating the parties intentions were the facts surrounding the offer letter. Those facts demonstrated that Shell had effectively terminated Rice's prior contract and required her to re-apply for one of the remaining positions. Rice engaged in the competition for the position, ultimately obtaining a new contract based on the terms in the offer letter, which included an "Assignment Length” of four years. Given these facts, it was reasonable to find that at the time the position was offered to Rice, she did not agree to be terminated on reasonable notice one year into the assignment and instead believed her employment would not be terminated for four years. The majority commented that an objective observer "might also reasonably conclude that was what Shell intended as well."
The majority of the Court of Appeal further held that while the offer letter was scant on the terms and conditions of Rice's employment, the terms it did contain were not ambiguous. The meaning of the term "Assignment Length" was clear. The plain and ordinary meaning of the word "assignment" indicated "a task which might require a finite amount of time to complete" and for Rice, the offer letter defined the length of the task as four years. While Shell argued that it had a special, defined meaning for the term "Assignment Length" and provided evidence (human resources policies) on this, it was clear that Rice was unaware of the special meaning of the term when she accepted the offer. Accordingly, this special definition of the term could not be relied on. This, together with the lack of termination provisions in the offer letter, meant it was open for the trial judge to find that there was unequivocal language indicating a fixed-term contract.
This decision indicates the consequences of a court interpreting important terms of a contract where it determines that a party's stated intention is unwritten or unclear – here, that interpretation meant the employer had to pay nearly three years' wages after lengthy litigation rather than the 15 months' wages it anticipated. We see that parties cannot always rely on the Court to accurately ascertain and enforce what was in the parties' minds when entering into a contract. Further, despite the well-established principle that employment contracts are presumptively indefinite and terminable only on reasonable notice, the decision in Rice v. Shell demonstrates that the plain meaning of the language used and surrounding facts can carry the day.
If you are an employer drafting an employment contract, take special care to clearly articulate the term of the contract and entitlements/obligations on termination. Please contact Tessa Gregson or any member of Field Law's Labour and Employment Group for guidance and assistance in this area.
Link to decision: Rice v Shell Global Solutions Canada Inc, 2021 ABCA 408