Employers’ Duty of Good Faith and the Enforceability of Deemed Resignations

Employers’ Duty of Good Faith and the Enforceability of Deemed Resignations

In Jonasson v. Nexen, 2018 ABQB 598, a major energy company was judged to have acted in bad faith by seeking to rely upon a deemed resignation clause in its leave of absence agreement (“LOA Agreement”). The employee was deemed to have been dismissed without cause. Wrongful dismissal and punitive damages were awarded.

The Court succinctly summarized the facts as follows:

The Plaintiff, Hans Jonasson, had been employed by Nexen for 22 years when he decided to take a leave of absence. He understood there was no guarantee that a job would be waiting for him at the end of his leave, but the agreement he signed assured him that Nexen would make “reasonable efforts” to find him one. If no placement could be found, then Mr. Jonasson would be deemed to have resigned at the end of his leave.

When the agreement was signed, Nexen’s upper management was in the early stages of planning a reduction to the workforce at Mr. Jonasson’s level. By the time he started his leave, his name was on a list of potential layoffs. During his leave, a final decision was made to terminate his employment. Mr. Jonasson had no idea about the workforce reduction, which Nexen initially keep confidential within a small group of top managers.

Nexen relied on the LOA Agreement to deem his departure a resignation. The effect is that Mr. Jonasson received no payment in lieu of notice of his dismissal.

Three key facts played a key role in the outcome of this case:

  1. The LOA Agreement included a promise by Nexen to make “reasonable efforts” to find Mr. Jonasson a job to come back to at the end of his leave.
  2. At the time that Mr. Jonasson entered into the LOA Agreement, Nexen knew it would be making significant cuts to the workforce. Mr. Jonasson did not know.
  3. Nexen did not make any special effort to find Mr. Jonasson a job upon his return

 

Deemed resignation not enforceable

The Court concluded that the parties were not of the same understanding when the LOA Agreement was entered into. Though Mr. Jonasson knowingly agreed that he could be deemed to resign, such consent was not fully informed. In order for a resignation to be valid, it must be voluntary and unambiguous. Mr. Jonasson would not have entered into the agreement if he knew of the impending workforce reduction. Therefore it was not voluntary and was not legally a resignation.

Section 4 of the Employment Standards Code states that any employment agreement that purports to deny an employee a remedy under the Code or purports to nullify any provision of the Code is deemed to be “against public policy and void”. The Code, amongst many things, obligates an employer to provide a certain amount of notice or termination pay to an employee that is dismissed without cause. Where an employee is “deemed to resign” against his or her will, it is tantamount to a dismissal without cause and deprives the employee of his or her notice or termination pay. That amounts to an avoidance of an obligation in the Code and is void.

Employer’s Duty of Good Faith

Following the Supreme Court of Canada in Potter v New Brunswick (Legal Aid Commission), 2015 SCC 10, the Court held that in an employment context, the “acting in good faith in relation to contractual dealings means being honest, reasonable, candid and forthright”. The LOA Agreement “should not be interpreted in the same manner as a commercial contract between equal parties who may assume whatever risks they choose. Employers and employees cannot be presumed to negotiate on an equal footing.”

The Court found that Nexen failed to act in good faith in this case. Its reasons were as follows:

Nexen failed to act with candour and forthrightness. It permitted Mr. Jonasson to enter into an LOA Agreement at a time when it knew that a significant percentage of management positions would be cut. When he started his leave, the percentage was even higher, and Mr. Jonasson had been identified as a target. As I have found, at first Nexen did not piece together its reduction program and Mr. Jonasson’s leave, but when it did, it still took no steps to comply with the LOA Agreement or to inform Mr. Jonasson of his true position. Nexen’s deliberate and ongoing secrecy about the intended cuts prevented Mr. Jonasson from protecting his own interests.

The phrase “reasonable efforts”, without further definition, necessarily gives rise to discretion. Those efforts were within Nexen’s exclusive discretion and control. It exercised its discretion inconsistently with the anticipated intentions of both parties. Nexen’s lack of particularized effort may have complied with its own expectations, but could not have been within the reasonable expectations of Mr. Jonasson.

Nexen attempts to hold Mr. Jonasson to his end of the agreement while failing to honour its own. In effect, Nexen exploited an agreement that was obtained through and continually characterized by a material lack of candour to deem Mr. Jonasson’s departure a resignation, thereby evading any obligation to pay severance.  Nexen acted in bad faith.

Takeaways

  1. Employers are held to a higher standard of good faith in their dealings with employees than they are with commercial counterparts. If an employee agrees to terms that allow his or her substantive legal rights to be impacted by the employer’s discretion, the employer will be exposed to liability for failing to be candid and forthright. The employer will be expected to (a) fully inform the employee of all material facts that impact risk assessment prior to entering into such a contract; and (b) exercise its discretion consistent with the understanding of both it and the employee.
  2. Resignations must be unequivocal and fully voluntary. They can be conditional, but the condition must be clear, concrete, transparent and of the employee’s own making. Imposing a resignation as a condition of an agreement or company policy will not be enforceable unless the employee was aware of not only the concept but the specific facts to inform the risk and voluntarily accepted the terms.

 

Carbert Waite LLP publishes materials on developments in the law. This article is for information only. It does not constitute legal advice or an opinion on any issue. For permission to reprint articles or to obtain legal advice, please contact us at 403-263-5656 or info@carbertwaite.com.

In Jonasson v. Nexen, 2018 ABQB 598, a major energy company was judged to have acted in bad faith by seeking to rely upon a deemed resignation clause in its leave of absence agreement (“LOA Agreement”). The employee was deemed to have been dismissed without cause. Wrongful dismissal and punitive damages were awarded.

The Court succinctly summarized the facts as follows:

The Plaintiff, Hans Jonasson, had been employed by Nexen for 22 years when he decided to take a leave of absence. He understood there was no guarantee that a job would be waiting for him at the end of his leave, but the agreement he signed assured him that Nexen would make “reasonable efforts” to find him one. If no placement could be found, then Mr. Jonasson would be deemed to have resigned at the end of his leave.

When the agreement was signed, Nexen’s upper management was in the early stages of planning a reduction to the workforce at Mr. Jonasson’s level. By the time he started his leave, his name was on a list of potential layoffs. During his leave, a final decision was made to terminate his employment. Mr. Jonasson had no idea about the workforce reduction, which Nexen initially keep confidential within a small group of top managers.

Nexen relied on the LOA Agreement to deem his departure a resignation. The effect is that Mr. Jonasson received no payment in lieu of notice of his dismissal.

Three key facts played a key role in the outcome of this case:

  1. The LOA Agreement included a promise by Nexen to make “reasonable efforts” to find Mr. Jonasson a job to come back to at the end of his leave.
  2. At the time that Mr. Jonasson entered into the LOA Agreement, Nexen knew it would be making significant cuts to the workforce. Mr. Jonasson did not know.
  3. Nexen did not make any special effort to find Mr. Jonasson a job upon his return

 

Deemed resignation not enforceable

The Court concluded that the parties were not of the same understanding when the LOA Agreement was entered into. Though Mr. Jonasson knowingly agreed that he could be deemed to resign, such consent was not fully informed. In order for a resignation to be valid, it must be voluntary and unambiguous. Mr. Jonasson would not have entered into the agreement if he knew of the impending workforce reduction. Therefore it was not voluntary and was not legally a resignation.

Section 4 of the Employment Standards Code states that any employment agreement that purports to deny an employee a remedy under the Code or purports to nullify any provision of the Code is deemed to be “against public policy and void”. The Code, amongst many things, obligates an employer to provide a certain amount of notice or termination pay to an employee that is dismissed without cause. Where an employee is “deemed to resign” against his or her will, it is tantamount to a dismissal without cause and deprives the employee of his or her notice or termination pay. That amounts to an avoidance of an obligation in the Code and is void.

Employer’s Duty of Good Faith

Following the Supreme Court of Canada in Potter v New Brunswick (Legal Aid Commission), 2015 SCC 10, the Court held that in an employment context, the “acting in good faith in relation to contractual dealings means being honest, reasonable, candid and forthright”. The LOA Agreement “should not be interpreted in the same manner as a commercial contract between equal parties who may assume whatever risks they choose. Employers and employees cannot be presumed to negotiate on an equal footing.”

The Court found that Nexen failed to act in good faith in this case. Its reasons were as follows:

Nexen failed to act with candour and forthrightness. It permitted Mr. Jonasson to enter into an LOA Agreement at a time when it knew that a significant percentage of management positions would be cut. When he started his leave, the percentage was even higher, and Mr. Jonasson had been identified as a target. As I have found, at first Nexen did not piece together its reduction program and Mr. Jonasson’s leave, but when it did, it still took no steps to comply with the LOA Agreement or to inform Mr. Jonasson of his true position. Nexen’s deliberate and ongoing secrecy about the intended cuts prevented Mr. Jonasson from protecting his own interests.

The phrase “reasonable efforts”, without further definition, necessarily gives rise to discretion. Those efforts were within Nexen’s exclusive discretion and control. It exercised its discretion inconsistently with the anticipated intentions of both parties. Nexen’s lack of particularized effort may have complied with its own expectations, but could not have been within the reasonable expectations of Mr. Jonasson.

Nexen attempts to hold Mr. Jonasson to his end of the agreement while failing to honour its own. In effect, Nexen exploited an agreement that was obtained through and continually characterized by a material lack of candour to deem Mr. Jonasson’s departure a resignation, thereby evading any obligation to pay severance.  Nexen acted in bad faith.

Takeaways

  1. Employers are held to a higher standard of good faith in their dealings with employees than they are with commercial counterparts. If an employee agrees to terms that allow his or her substantive legal rights to be impacted by the employer’s discretion, the employer will be exposed to liability for failing to be candid and forthright. The employer will be expected to (a) fully inform the employee of all material facts that impact risk assessment prior to entering into such a contract; and (b) exercise its discretion consistent with the understanding of both it and the employee.
  2. Resignations must be unequivocal and fully voluntary. They can be conditional, but the condition must be clear, concrete, transparent and of the employee’s own making. Imposing a resignation as a condition of an agreement or company policy will not be enforceable unless the employee was aware of not only the concept but the specific facts to inform the risk and voluntarily accepted the terms.

 

Carbert Waite LLP publishes materials on developments in the law. This article is for information only. It does not constitute legal advice or an opinion on any issue. For permission to reprint articles or to obtain legal advice, please contact us at 403-263-5656 or info@carbertwaite.com.