Clauses in Asset Purchase Agreement Constitute Fixed Term Employment
Update by Evelyn Tsao, Articled Student and Erin Brandt, Cofounder
Fixed term employment contracts should be approached with caution by employers because an early termination of the employment relationship may mean an obligation to pay the employee for the remainder of the fixed term.
In the case of Bouchard v Facility Condition Assessment Portfolio Experts Ontario Ltd., 2024 BCSC 1870, the BC Supreme Court went beyond the four corners of an employment contract to find that clauses in an asset purchase agreement represented a fixed term for employment superseding the termination provisions in the employment contract.
Background
The Plaintiff was a registered professional engineer and principal owner of an engineering company. The Defendant, Facility Condition Assessment Portfolio Experts (“FCAPX”), provides engineering and management consulting services. The parties came to an agreement for FCAPX to purchase the Plaintiff’s company and to bring the Plaintiff into FCAPX. Three key documents were created during negotiations:
an asset and purchase agreement dated August 18, 2018 (“the APA”);
a non-solicitation and confidentiality agreement dated August 18, 2018; and
an employment contract offered on August 17, 2018 and effective on September 4, 2018 (“the Employment Contract”).
The APA contained a clause providing that FCAPX shall employ the Plaintiff for no less than 3 years (“the Fixed Term Clause”) and that for the period of 3 years, the Plaintiff shall be subject to restrictive covenants. Notably, while the Employment Contract included a termination clause allowing FCAPX to terminate the Plaintiff’s employment without cause by providing notice as required by the Employment Standards Act, the Employment Contract also stated that the provisions in the APA supersede any relevant or related clauses in in the Employment Contract.
On July 14, 2020, FCAPX terminated the Plaintiff’s employment without cause and paid him two weeks’ salary in lieu of notice, in accordance with the Employment Standards Act.
The main issue for the BC Supreme Court was whether the Fixed Term Clause in the APA constituted a three-year fixed term of employment. The Plaintiff argued that the Fixed Term Clause superseded the termination clause in the Employment Contract, meaning upon termination he was entitled to severance to the balance of the three-year fixed term. FCAPX argued that the Fixed Term Clause was simply a requirement for the Plaintiff to make himself available to FCAPX for three years.
Decision
The Court adopted a plain and ordinary reading of the APA and the Employment Contract to find that the Fixed Term Clause in the APA supersedes the termination provisions in the Employment Contract and therefore constituted a minimum three-year fixed-term contract.
In coming to this conclusion, the Court decided that there must have been an intention for the Plaintiff’s employment to be on a fixed term contract because it would not have made sense otherwise for the Plaintiff to have sold his own company, subject himself to restrictive covenants for three years, and still take on the responsibility of paying off the remainder of the business loan he had used to build his company now owned by FCAPX.
As the Contract contained a choice of law clause providing for the application of Ontario law, the BC Supreme Court decided that in line with the Ontario Court of Appeal’s decision in Howard v Benson Group Inc., 2016 ONCA 256, the Plaintiff was owed a notice period equivalent to the remainder of the three-year term with no obligation to mitigate his damages.
Key Take Away for Employees
Agreements regarding terms of employment which are part and parcel of a contractual relationship may be enforceable even if they are not captured within the employment contract. However, leaving the courts to define and enforce terms of employment carries a measure of risk and uncertainty, so employees should ensure that rights and obligations surrounding an employment relationship should be written into the employment contract and not in an ancillary document. Employees should also make sure that the employment contract does not contain terms which contradict or otherwise detract from what was agreed between the parties in discussions leading up to the drafting of the contract.
Key Take Away for Employers
Employers should take care when entering into any agreement dealing with an employment relationship. Although it is easy to assume that the parameters of an employment relationship are defined by the employment contract, in some cases, agreements which represent any form of shared intention or understanding coming into an employment relationship could bind the employer.
Employers should refresh themselves on the law of contract interpretation, which takes into account:
the ordinary meaning of words used in the contract;
a contextual interpretation of the contract;
the parties’ true intentions; and
the doctrine of contra proferentem, i.e. any ambiguity is to be resolved against the interest of the party who wrote the agreement, which is in most cases the employer.
In cases where a commercial agreement is entangled with an employment contract, employers should engage an employment lawyer to ensure the terms of employment are well delineated.
