Undocumented Obligations: The Creation of an Oral Fixed Term Employment Contract

July 2016

Previously printed in the LexisNexis Labour Notes Newsletter.

While it is fairly common for terms of an employment contract to be partially written and partially oral, the oral terms tend to be more nebulous. In James v. The Hollypark Organization Inc., 2016 BCSC 495, the dispute centered on the existence of an oral term.

The parties did not enter into a written contract. It was, however, common ground that the employee was hired around spring 2013 and terminated without cause in August 2013.  The dispute was whether the employment was for a fixed term of one year.

The B.C. Supreme Court laid out the principles which apply to alleged oral contracts: the onus is on the employee to prove it was a fixed term contract; such contracts can be created orally where the intention is clearly expressed or necessarily implied on an ad item (meeting of the minds) basis; oral discussions should allow a reasonable observer to conclude the employment was for a fixed term; and there is greater flexibility in the evidence admissible to prove a completely oral contract because the court does not have the benefit of the words of the agreement.  Assuming there was a fixed term contract, damages are in respect of the unexpired portion of the fixed term less any earnings in mitigation.

The employer was building a new hotel and looking to have the Marriott as the franchisor. The employee had previous training and experience in opening and operating a Marriott.  Originally, the employee provided consulting services to the employer from April 2012 to May 2013.

The employer’s contractual obligations (the Franchise Agreement) with Marriott required an employee who had Marriott training to oversee the new hotel for the first year (which started four months prior to opening). The employee argued that a one year fixed term contract was agreed.  She relied on an August 2012 conversation with a Marriott representative, the employer and the employee.  Essentially, the employee submitted that the parties and Marriott agreed she had the necessary training and experience and the employment would be for a one year term.  If the employer did not have the employee, it would have had to engage a more expensive, third-party management company pursuant to the Franchise Agreement.

Additional evidence to support the fixed term included: the employee moved to Vernon to be closer to the project; the employee e-mailed the employer a proposed salary breakdown for a one year term; the employer sent an e-mail to the employee and others that implied she would be around well into 2014; and 500 business cards were made naming the employee as the General Manager.

The employer argued that the Marriott was satisfied with the employee being involved as a consultant and there was no discussion of a fixed term of employment. Notably, the Marriott witness was not called by either side to substantiate any claim in the case.

The Court did not accept that Marriott would have waived its requirements to have a trained manager oversee the first year, especially in light of the fact that the principal of the employer was young, inexperienced and not Marriot trained. The lack of any Marriott agreement expressly stating that the employee was to be hired by the employer was not, the Court ruled, fatal to its finding.

While the Court recognized that the evidence was not definitive, it was more consistent with the employee’s account of events.

Regarding damages, the Court found that the employee did not fail to mitigate when she travelled to Mexico for an extended period. The employee’s evidence was that her job search continued from Mexico and she was prepared to return to attend to any reasonable job prospect.  The employer was unable to show that the employee missed any opportunity by being in Mexico.

Employer Takeaways

1. Important employment terms should be reduced to a written contract.

2. Inclusion of an “entire agreement” or “no previous representation” provision in the written employment contract will reduce an employer’s exposure to alleged oral terms.

3. A wide range of evidence will be considered to determine the existence of an oral term. It is thus important that the employer’s conduct be consistent with its understanding of the oral term.