A recent case in Alberta has helpfully reviewed the laws of contractual interpretation in an employment law context. In Plotnikoff v. Associated Engineering Alberta Ltd., 2024 ABKB 706, the judge engaged in a thorough review of case law regarding contractual interpretation.
Standard of Review for Contractual Interpretation
First and foremost, the judge noted the particular standard of review for contracts on appeals. In particular, contractual interpretation entails issues of mixed fact and law, hence it is reviewable on the standard of palpable and overriding error. Absent such an error, a reviewing court is not entitled to review the lower court’s interpretation of a contract.
Key Principles of Employment Contract Interpretation
Moving forward, the judge reflected on the sets of principles that apply specifically to the interpretation of employment contracts.
Inequality of Bargaining Power in Employment Contracts
First and foremost, the judge noted that courts have recognized the inequality of bargaining power inherent in the employment relationship and the limited opportunity of employees to negotiate contractual terms. Consequently, certain principles for contractual interpretation have developed in the employment contract context.
Doctrine of Contra Proferentem in Employment Law
One particular aspect of contractual interpretation in the employment law context is the doctrine of contra proferentem, which interprets ambiguities in the employment contract in favour of the employee. Citing case law, the judge notes that “in employment law, uncertainty ought to be resolved in favour of the employee”, and that given “a termination clause that could reasonably be interpreted in more than one way, courts should prefer the interpretation that gives the greater benefit to the employee”. In other words, the contract is interpreted against the employer who drafted the contract, because the employer is presumed to be in a position of sufficient sophistication to draft the contract to say precisely what they want to say.
Presumption of Reasonable Notice in Employment Contracts
In addition to this principle, the judge also added that employment contracts are presumed to contain an implied term requiring employers to provide employees with reasonable notice of dismissal. Of course, such an implied term can be modified or replaced with explicit limitations to entitlement to reasonable notice. However, there are various requirements around any attempt to limit notice entitlements.
Requirements for Limiting Notice Entitlements
One such requirement is that any attempt to limit entitlements in breach of employment standards legislation is a breach of the law and is hence unenforceable. Another requirement, which the judge noted is that “an enforceable employment contract must contain clear and unequivocal language to extinguish or limit an employee’s common law rights”. Failure to meet this requirement permits the employee to pursue common law reasonable notice. In relation to the above principle that ambiguities are resolved in favour of the employee, the judge noted that, in fact, there is a presumption that the employee is actually entitled to common law reasonable notice, and only if the contract unambiguously removes or limits that right will that presumption be defeated.
The judge’s thorough-going analysis of the general principles of contractual interpretation pertaining to employment contracts provides a very helpful summary to workers hoping to understand their entitlements and what to look for in their own employment contracts.
How Contractual Interpretation Applied in the Case
The judge went on to apply these principles of contractual interpretation to the particular termination clause in this case. The termination clause stated:
“Termination without Cause: The Company may terminate employment without cause upon providing the Employee with notice as may be mandated by the Employment Standards legislation or such additional notice as the Company, in its sole discretion, may provide or, at our option, pay in lieu of such notice”.
The judge in this case upheld the trial judge’s interpretation of the termination clause as not limiting Mr. Plotnikoff’s entitlement to reasonable notice. In reaching this conclusion, the judge cited both the Supreme Court of Canada’s decision in Machtinger, but also numerous Ontario cases to outline how the clause did not actually limit entitlements. Particularly, the judge ruled that the clause only indicates that the worker would receive employment standards notice. But notice under employment standards legislation is only a minimum standard.
No maximum standard is outlined in employment standards legislation, nor does the employment standards legislation remove the presumption of common law reasonable notice. In other words, the judge found that the clause did not unambiguously remove or limit Mr. Plotnikoff’s entitlement to reasonable notice.
Additionally, the judge noted that the employer even contemplated providing more than the minimum standards through the language of “additional notice as the company, in its sole discretion, may provide”. The judge found that such a contemplation also indicated that there was no unambiguous limit of notice to that outline in the employment standards legislation.