In Quach v. Mitrux Services Ltd., 2020 BCCA 25 (Quach), the British Columbia Court of Appeal overturned the trial court’s decision to award aggravated damages to an individual whose job was terminated before his employment began because the manner of dismissal did not cause the requisite “mental distress.” Rather, the court concluded the plaintiff’s “feeling of strong dismay and anxiety for himself and family” was not beyond the “normal distress and hurt feelings” that employees generally experience following a dismissal, which are not compensable.

Furthermore, although the Court of Appeal did not decide the matter, Quach provides insight into the court’s thoughts on whether fresh consideration is required to ensure the enforceability of new terms that vary the initial expected terms of employment. 

Finally, the Court of Appeal also affirmed its prior decision that in a contractual claim, whether arising from a fixed‑term contract or not, the usual rules of mitigation of damages apply: unless the contract provides otherwise, the employer derives the benefit of mitigation. 

Background

On August 25, 2015, the plaintiff entered into a one-year fixed-term employment contract with the employer from October 1, 2015, to September 30, 2016, at an annual salary of $138,000 (Fixed-term Contract), prepared by the plaintiff’s lawyer.  The Fixed-term Contract contained a termination provision allowing the employer to terminate the plaintiff by paying out the remainder of the fixed-term.

On September 28, 2015, after the employer received legal advice regarding the Fixed‑term Contract, and after the plaintiff left his secure previous employment, the employer asked the plaintiff to agree to a month‑to‑month contract commencing on October 1, 2015, and terminable on four weeks’ notice (Second Contract).  That same day, once the employer agreed to reimburse the plaintiff for his legal fees for the preparation of the Fixed-term Contract, the parties entered into the Second Contract.  The plaintiff insisted that the Second Contract include this term, and the employer agreed:

5.6   Any failure to comply the terms [sic] of the Employment Agreement or misrepresentation by the Employer will void this Employment Agreement.

On September 30, 2015, the employer “terminated” the plaintiff’s employment.  The plaintiff sued for damages for wrongful dismissal, basing his claim on the Fixed‑Term Contract. The employer alleged cause and argued the Second Contract was the operative agreement.

Trail Decision

The trial judge decided the employer did not have cause for dismissal and rejected the employer’s argument that the Fixed‑Term Contract was unenforceable.  The main issue was which of the two contracts was the operative contract. 

The employer argued its payment of the plaintiff’s legal fees and its waiver of the probation requirement were fresh consideration for the Second Contract.  However, the court noted the employer did not reimburse the plaintiff for the legal fees and found there was no value in the waiver of the probation requirement.

The judge accepted the plaintiff’s arguments that contrary to s. 5.6 of the Second Contract: (a) it failed for lack of fresh consideration; and (b) alternatively, it was void because the employer misrepresented his intentions to employ the plaintiff and failed to comply with the Second Contract’s terms by not allowing the plaintiff to begin employment on October 1, 2015.  The plaintiff was awarded a year’s salary under the Fixed‑term Contract, $15,000 in aggravated damages, and costs.

Court of Appeal Decision

The employer appealed, arguing the judge erred in:

1. Finding the $1,000 paid to the plaintiff as reimbursement of legal fees incurred in preparing the Fixed‑Term Contract was not good consideration for the Second Contract;
2. Determining that the employer had made a misrepresentation to the plaintiff that voided the Second Contract; and
3. Awarding the plaintiff aggravated damages.

The appeal was allowed on the issue of aggravated damages only.

Aggravated Damages

In arriving at its decision to allow the appeal on the issue of aggravated damages and to set aside the $15,000 award, the Court of Appeal noted:

• An award of aggravated damages resulting from the manner of dismissal requires: (a) a finding that an employer engaged in conduct during the course of dismissal that was unfair or in bad faith, and (b) a finding that the manner of dismissal caused the plaintiff mental distress.

• Not all mental distress from the fact of dismissal attracts an award of aggravated damages – the plaintiff is required to establish something well beyond the normal distress and hurt feelings that invariably accompanies loss of employment.

• Testimony showing a “serious and prolonged disruption that transcended ordinary emotional upset of distress” may constitute a sufficient evidentiary foundation but “the demeanor of the plaintiff in the witness stand” is an insufficient basis for a finding of the requisite distress.

The court concluded:

…there is no indication that the employee’s feeling of strong dismay and anxiety for himself and family was beyond the “normal distress and hurt feelings” that are not compensable. On the contrary, there is considerable evidence that he recovered quickly from his loss of the position. For example, the record shows that the employee was at least partially prepared for the possibility he would lose his job; he had already sought out other employment opportunities, and because of that anticipatory search, he found new employment soon after he learned he would not be starting work with the employer. So too, the employee’s frank exchanges with Mr. Arora, quickly corresponding with Mr. Arora and saying that he would “see [Mr. Arora] in court”, demonstrate a sturdy response to the “dismissal.  (para. 31)

Consideration for the Second Contract

The Court of Appeal agreed with the trial judge that the $1,000 paid to the plaintiff as reimbursement of legal fees incurred in preparing the Fixed‑Term Contract was not good consideration for the Second Contract, and accordingly the Fixed-term Contract was the operative contract.  Having arrived at this conclusion, the court did not overturn the lower court decision, and noted the following on the topic of consideration for the Second Contract:

• It is a basic principle of contract law that consideration between parties is required to create a binding contract.

• However, in Rosas v. Toca, 2018 BCCA 191 the Court of Appeal decided that, “… 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.

• Rosas may not change the authority in  Singh v. Empire Life Ins. Co., 2002 BCCA 452, which may be relied upon “in the nuanced world of employer and employee contractual relationships” for the proposition that modification of a pre‑existing contract will not be enforced unless there is a further benefit to both parties.  Whether Rosas changes the authority of Singh “is an interesting question that can and should be left to another day …”

• Not only did the plaintiff receive no further benefit from the Second Contract, he in fact lost the benefit of the guarantee of employment for a term of one year under the Fixed‑Term Contract, and received nothing in exchange.  Meanwhile, the employer received a significant benefit because they were no longer liable to the plaintiff for damages over the first term.

• “…from a policy standpoint it would lead to an unrealistic and unfair result if the principles of fresh consideration did not apply in a situation where employment had not yet commenced but there was a subsequent contract that amended the initial expected terms of employment...” (para. 265)

Misrepresentation

Given the Court of Appeal’s conclusion on the subject of fresh consideration, it did not address this ground in its reasons.

Mitigation of Damages

The Court of Appeal noted that when the trial judge made no deduction for mitigation of damages through post‑dismissal earnings he relied on in an Ontario authority known as Howard v. Benson Group Inc. (The Benson Group Inc.), 2016 ONCA 256, leave to appeal ref’d [2016] S.C.C.A. No. 240 (Howard v. Benson); however, the court preferred to rely on the leading authority in British Columbia, Neilson v. Vancouver Hockey Club Ltd. (1988), 1988 CanLII 3051, 51 D.L.R. (4th) 40 (B.C.C.A.) (Neilson).  In Howard v. Benson, the Ontario Court of Appeal held that when an employee’s job is terminated prior to the end of a fixed term contract, they do not have a duty to mitigate their damages unless there is an express mitigation provision in the contract. In contrast, Neilson provides that in a contractual claim, whether arising from a fixed‑term contract or not, unless the contract provides otherwise, the employer derives the benefit of mitigation. 

The Court of Appeal noted that clause 4.1(b) of the plaintiff’s Fixed-term Contract expressly established the amount of the payment owing to the plaintiff by the employer immediately upon termination of the employment by the employer:

4.1   The parties understand and agree that the Employee’s employment pursuant to this agreement may be terminated as follows:

(a) By the Employee, at any time, for any reason, on the giving of four weeks written notice to the Employer;

(b) By the Employer, in its absolute discretion, at any time, on the giving of written notice to the Employee at which time payment of the full balance of the compensation due to the Employee for the entire First Term or Second Term as the case may be will become due and payable within two weeks of such notice of termination. For greater clarity, the Employer shall pay to the Employee, all compensation due to the Employee at the date of termination as well as all compensation due to the Employee from the date of termination through to the expiration of the First Term or Second Term as the case may be. [Emphasis added]

Accordingly, the court concluded that the trial judge’s conclusion that the plaintiff was entitled to damages equal to one full year of earnings was the correct decision under the Fixed‑Term Contract.

Bottom Line for Employers

Quach puts employers on notice that the distressed demeanor of a dismissed employee on the witness stand will not suffice to cause a claim for aggravated damages to succeed.  To succeed in such a claim, the employee must establish that:

• The employer engaged in conduct during the course of dismissal that was unfair or in bad faith; and

• The manner of dismissal caused the employee mental distress beyond the “normal distress and hurt feelings” that invariably accompany loss of employment.

Furthermore, although Quach did not decide the matter, it puts employers on notice that if they want to ensure the enforceability of an employment contract that varies the initial expected terms of employment, their most cautious approach is to offer fresh consideration.

Finally, Quach affirms the law in British Columbia that in a contractual claim arising from a fixed‑term contract, unless the contract provides otherwise, the employer derives the benefit of mitigation.  The rule is not the same, however, in every province in Canada.  For example, as noted above, the Ontario Court of Appeal decided in Howard v. Benson that unless there is an express mitigation clause in a fixed term contract, an employee whose job is terminated prior to the contract’s end does not have a duty to mitigate their damages.  

Accordingly, employers should be cautious about their conduct in the course of dismissing an employee.  They should avoid conduct that is unfair or in bad faith, and avoid dismissing an employee in a manner that might cause the employee mental distress beyond the “normal distress and hurt feelings” that invariably occurs when someone experiences a loss of employment.

Furthermore, to improve the likelihood that a new employment contract that varies the initial expected terms of the employee’s employment will be enforceable, employers are encouraged to seek the advice of experienced employment counsel to draft them to ensure they offer fresh consideration. 

Finally, employers should consider the impact of mitigation when entering into employment contracts, fixed-term or otherwise.  Once again, employers are encouraged to seek the advice of experienced employment counsel to draft employment contracts that protect them from the loss of this benefit, subject to applicable employment standards legislation.