A Labour and Employment Update
In a recent decision in a case involving Clarica Life, the Alberta Court of Appeal has set aside a trial judge's attempt to meddle in a deal made with a departing employee.
The employee made a deal at the time of his departure that involved his resignation and acceptance of about nine months' pay. He did not sign a release but it was clear that a deal was made. The trial judge allowed him to renege on this deal. He concluded that the deal was "unconscionable," not negotiated in good faith, and violated some form of duty of good faith and fair dealing.
The Court explained that the rules for proving "unconscionability" are very strict. Four necessary elements must be established:
- a grossly unfair and improvident transaction;
- victim's lack of independent legal advice or other suitable advice; and
- overwhelming imbalance in bargaining power caused by victim's ignorance of business, illiteracy, ignorance of the language of the bargain, blindness, deafness, illness, senility, or similar disability; and
- other party's knowingly taking advantage of this vulnerability.
None of these required elements was met on the facts of the case. For one thing, the Court noted that potential mitigation is a very good reason to discount a settlement from the figure that a straight "reasonable notice" calculation would generate. The cost and delay and uncertainty of litigation are other reasons. It could be very reasonable for an employee to accept a nine month payment when his potential notice period is 19 months.
The Court also rejected the argument that there was a legal duty on an employer to act in good faith in its negotiations with the employee.
There are many examples of particular judges bending over backwards to help out employees in wrongful dismissal suits. This decision signals to courts in Alberta that if employees settle their severance packages that they should generally be bound by those deals. Employees are not members of a special group that is given relatively free rein to renege on deals they make, which was the message in some earlier cases.