How to Make One Year’s Salary Without Working a Single Day

February 2020

Previously published by The Lawyer’s Daily (www.thelawyersdaily.ca) a division of LexisNexis Canada

In its recent decision in Quach v. Mitrux Services Ltd., 2020 BCCA 25 [Quach], the BC Court of Appeal offered some helpful guidance and clarity on several important employment law issues, in particular relating to fixed-term employees.

Mitrux Services Ltd. (the “Employer”) initially hired Mr. Quach pursuant to a fixed-term contract, which provided employment from October 1, 2015 to September 30, 2016. However, the Employer then had Mr. Quach sign a subsequent employment contract three days prior to the start of his employment. The subsequent contract was not for a fixed term and included a termination clause providing for four weeks’ notice upon termination without cause.

The Employer then terminated Mr. Quach without cause on September 30, 2015, one day before he began work. Mr. Quach filed a civil claim seeking damages for breach of the fixed-term contract and for the manner of his termination.

The Trial Judge awarded Mr. Quach damages for breach of the fixed-term contract equivalent to his annual salary ($130,000) and an additional $15,000 in aggravated damages for the manner in which the Employer dismissed him. The Employer appealed the award.

Amending an Employment Contract

The Court of Appeal first considered whether the subsequent contract had effectively replaced the fixed-term contract. The Court confirmed the well accepted general rule that an employer must provide consideration to amend the terms of an existing employment relationship.  In this case, the Employer’s vague and unpaid promise of $1,000 for replacing the fixed-term contract with the indefinite contract, did not constitute sufficient consideration. Therefore the fixed-term contract remained in place.

The Court of Appeal then reviewed its previous decision of Rosas[1], where it had found that consideration is not always a prerequisite to vary a contract. Since Rosas there has been some suggestion in legal circles that the door had been opened to amend employment contracts without consideration. However, the Court in Quach distinguished its fact pattern from Rosas, which involved a debtor who continuously extended repayment deadlines for a creditor.  Given that the Court had determined that the fixed term contract remained in place, it declined to decide whether consideration is always required to vary employment contracts.  Therefore, until further clarity is provided by the courts, the most prudent approach for employers is to always provide consideration for contractual changes, particularly when the changes relate to important issues such as compensation and termination.

Aggravated Damages

The Court of Appeal also clarified that an award of aggravated damages arising from the manner of dismissal requires an employee to establish bad faith conduct on the part of their employer and mental distress beyond the normal hurt feelings associated with being terminated.

The Trial Judge had found that Mr. Quach satisfied the test for aggravated damages because he was devastated at the time of termination, regarded himself as a complete failure, and experienced related stress and anxiety.

The Court of Appeal overturned this aspect of the Trial Judge’s decision. It considered that Mr. Quach had been conducting an anticipatory search for alternate employment prior to his termination, and found that the evidence fell “well short” of the legal standard of mental distress required for the “exceptional remedy” of aggravated damages.

Duty to Mitigate for Fixed-Term Employees

Finally, and perhaps most significantly, the Court of Appeal clarified that employees hired pursuant to fixed-term contracts have a general duty to mitigate their losses.

Recently the Ontario Court of Appeal determined employees with fixed-term contracts do not have a duty to mitigate unless there was specific contractual language to that effect.[2] The BC Court of Appeal rejected this approach and held that these employees do have a duty to mitigate, unless there is contractual language providing otherwise. For example, if an employment contract specifies a fixed termination entitlement, then the contract must also specify that mitigation is required in order for the employee to have a duty to mitigate.  If there is no specified termination entitlement, then the duty to mitigate arises and the employee must make reasonable efforts to find alternate employment, despite having a fixed-term contract.

In Quach, the Court of Appeal determined that Mr. Quach did not have a duty to mitigate because his initial fixed-term contract guaranteed the amount payable upon termination. Therefore Mr. Quach retained his award of damages for $130,000, despite never having worked a day for the Employer.

[1] Rosas v. Toca, 2018 BCCA 191 [Rosas].

[2] Howard v. Benson, (The Benson Group Inc.), 2016 ONCA 256 [Benson].