Update from Alberta Court on Good Faith Obligation of Employer in Agreements with Employees 2019-08-30T14:20:35+00:00

Mr. Jonasson, an employee of Nexen Energy for 22 years, decided to take a leave of absence. Mr. Jonasson entered into a leave of absence agreement with Nexen where it was agreed that Nexen would make reasonable efforts to find him a job at the end of his leave, but there would be no guarantee that a job would be waiting for him upon his readiness to return. According to the agreement, if there was no job available for Mr. Jonasson at that time, he would be deemed to have resigned and would not be entitled to any severance, termination payment, bonus or benefits.

When the leave of absence agreement was being signed, Nexen’s upper management was in the midst of deliberating workplace cuts at Mr. Jonasson’s senior level. At the time he started his leave, Mr. Jonasson was on the list of people that were potentially going to be laid off. In fact, Nexen made the decision to fire Mr. Jonasson in January before his leave was scheduled to end in April. Three months later, and while he was out of town, Nexen called Mr. Jonasson to advise him that he was being terminated and that he would be deemed to have resigned as of the date he was supposed to return from leave. No severance was offered or paid to Mr. Jonasson.

While the Human Resources (“HR”) representative that Mr. Jonasson approached about his leave and who signed the leave of absence agreement on Nexen’s behalf, was not aware of the potential layoffs, the Court held that Nexen was the contracting party and therefore knew about the workforce reduction at the time he entered into the agreement. Further, HR officials running the reduction program became aware that Mr. Jonasson was on a leave of absence after his leave began. Nexen made their decision to terminate Mr. Jonasson after finding out he was on leave and four months prior the completion of his leave.

The Court of Queen’s Bench of Alberta found that Nexen wrongfully dismissed Mr. Jonasson on several different grounds.

Firstly, the Court determined that an agreement was never reached with respect to Mr. Jonasson’s leave of absence as the parties were never truly ad idem or, in other words, did not have a meeting of the minds on the terms. More specifically, unlike Mr. Jonasson, Nexen knew that efforts to find Mr. Jonasson a role to return to would not be productive. Nexen’s promise to make reasonable efforts was therefore found to be “hollow”. The court stated that “[g]iven the informational imbalance between them, it was impossible for the parties to be ad idem on the meaning of “reasonable efforts” or on the magnitude of the risk Mr. Jonasson was taking”.

Secondly, the Court found that even if the leave of absence agreement was valid, Nexen failed to make reasonable efforts to find a job for Mr. Jonasson to return to within the meaning of the agreement. In coming to this conclusion, the Court highlighted that those involved in the job reductions did not know about Mr. Jonasson’s leave, and when they did, they used his leave against him.

Thirdly, the Court determined that the agreement was contrary to public policy and, if otherwise valid, would be void under section 4 of the Alberta Employment Standards Code (the equivalent of s. 5 of the Employment Standards Act, 2000) by deeming resignation against the employee’s wishes or informed agreement, and by retroactively waiving notice and severance.

Most significantly, the Court held that Nexen’s conduct amounted to bad faith and awarded Mr. Jonasson $20,000 in punitive damages. In doing so, it has been confirmed that agreements made in the employment setting are interpreted differently than commercial contracts. For the purposes of the analysis, the Court assumed that the contract was valid despite holding there was no contract ad idem. It was held that Nexen failed to act with candour and forthrightness: (1) in allowing Mr. Jonassan to enter into a leave of absence agreement when it knew many management positions would be cut, (2) Mr. Jonasson having been identified as a target of the cuts at the start of his leave, and (3) when Nexen became aware of his leave, they took no steps to comply with the agreement or to advise Mr. Jonassan of its true position. “Nexen’s deliberate and ongoing secrecy about the intended cuts prevented Mr. Jonasson from protecting his own interests.” It was also notable that Nexen exploited the agreement obtained through a material lack of candour by deeming his resignation and evading their obligation to pay him severance.

The quantum of the award was based on the finding that Nexen’s conduct was not malicious but amounted to “an outrageous degree of negligence toward him, the obligation it undertook in the leave of absence agreement and its obligation as an employer”.

The Takeaway

There is no doubt that there is a legal obligation for employers to be forthright and enter into contracts with employees in good faith, especially when these contracts have the potential to significantly impact an employee’s legal entitlements. The decision in Jonasson v. Nexen suggests that an employer has a duty to disclose material facts which could impact the outcome of the agreement.  The law of bad faith conduct in employment contracts continues to develop. Employers are well advised to seek legal advice when the circumstances around an agreement or termination are complicated. The lawyers at Robinson Heeney would be happy to provide guidance.