Alberta Court Uphold Contract Even Though It Offends the ESA:

In Pisko v. Trican Well Service Ltd. ,( 2016 ABQB 500) Master Farrington found that a provision of the employment agreement offended the Alberta Employment Standards Act in that it excluded a certain rotational shift allowance from the calculation of wages when determining how much money was payable for each week of termination pay.

The contract provisions were as follows:
Clause 9: Compensation-your base salary will be $110,652.00 per year (“Base Salary”). In addition, you will receive a Rotational Assignment Allowance (“RAA”) of 25% of your base salary in accordance with the Rotational Policy, bringing your total compensation to $138,315.00 per year, less applicable statutory deductions. The RAA percentage is subject to change in Trican’s sole discretion.
Clause 14: Termination-In the event that this Agreement or your employment is terminated by Trican after completion of your probationary period, for any reason other than cause, Trican will provide you with either: (i) sixty (60) calendar days notice of such termination, i.e. the equivalent of one full rotation; or (ii) a severance payment equivalent to sixty (60) calendar days of your Base Salary, excluding the RAA and less applicable statutory deductions; or (iii) a combination of notice and Base Salary, excluding the RAA and less applicable statutory deductions, equivalent to sixty (60) calendar days total.
Clause 19: Severability-If any provision of this Agreement is determined to be void or unenforceable in whole or in part, it will not be deemed to affect or impair the validity of any other covenant or provision of this agreement.

Rather than declaring the whole provision invalid as it breached the ESA, the Master chose to ” rewrite the contract” so that it complied with the ESA. His comments were as follows:

25. The question then becomes whether all of Clause 14 of the employment contract (including the 60 day notice provision) is void, or whether some type of alternative result should flow. The plaintiff argues that all of Clause 14 is void and that Machtinger applies preserving the common law position on notice periods and reasonable notice.
26. The employment agreement in this case has a severability clause. The agreements in Machtinger did not appear to have had such a clause.
27. When one reviews the termination clause in this case there are three alternatives for the employer. The first alternative permits termination on 60 days notice. Nothing in that concept violates the Employment Standards Code in any way. The second alternative allows for a severance payment equivalent to 60 calendar days, but it excludes the RAA in the calculation of the payment. I have found that excluding the RAA from the calculation violates the Employment Standards Code. The third alternative, and the one chosen here, also excludes the RAA in the calculation of the payment in lieu of notice portion of the severance payment. Similarly, that provision, as drafted, violates the Employment Standards Code.

28. Machtinger was a case about an aggressive employer who attempted to take advantage of employees and who then asked for a fallback position that its contract be interpreted as if it had been drafted with the employment standards minimum notice periods as its severance obligation. The Supreme Court of Canada found that to be objectionable, as finding for the employer would have been an incentive for employers to attempt to take advantage of employees by attempting to shorten notice periods with no consequences to them if their attempts were not successful if they were allowed to have a fallback position based upon the employment standards minimum notice periods in any event. In Machtinger , there was a common law alternative on notice periods if the agreement was declared to be void. The readily available common law alternative to a void contractual notice period was the common law doctrine of reasonable notice.
29. In this case, the issue is not with respect to the notice period itself, but rather in the calculation of wages. The working notice provision allowed for 60 days notice. There was no suggestion in the evidence or argument that anyone was attempting to intentionally avoid the provisions of the Employment Standards Code in the drafting of the payment in lieu of notice provisions.

30. The preamble of the Employment Standards Code provides in part:
RECOGNIZING that legislation is an appropriate means of establishing minimum standards for terms and conditions of employment;
(Emphasis added)
31. There is support for considering the preamble of the Employment Standards Code in section 12(1) of the Interpretation Act which provides:
(1) The preamble of an enactment is a part of the enactment intended to assist in explaining the enactment.
32. The Employment Standards Code is meant to ensure that employees receive guaranteed minimum protections as set out in the Code. That is an important objective which must never be compromised. The Employment Standards Code is not, however, meant to necessarily serve as a conduit to remedies in excess of the minimum standards for every breach by an employer, regardless of the nature of the breach. In some instances, such as in Machtinger , the result of a breach and a declaration that a provision in an employment contract is void results in reliance upon common law remedies where they exist and are available to deal with the issue that rendered the contract void.
33. In this case the offending provision is with respect to the calculation of wages. The remedy for that type of breach is to calculate the wages properly. The remedy is not to rewrite the agreement of the parties regarding the applicable notice period when that notice period complied with the Employment Standards Code. I find that the issue of the notice period and the calculation of wages are two separate issues. While there may be some subtle differences between the calculation of income or wages for severance purposes under the Code and under the common law, there is no suggestion that any of that type of income is a factor in this case.
34 Trican argued that the severability clause was available to provide formal severance of the offending portions of Clause 14 of the letter agreement. I do not believe that it is necessary to formally do so based upon the facts of this case.
35 The Employment Standards Code provides for a minimum set of standards that must be met by an employer. The employment agreement permitted termination with notice. The notice that was given in this case was 16 days of working notice, plus a severance payment of 60 days including the RAA. The notice given and the payment made clearly exceeded the guaranteed minimums under the Employment Standards Code. In the circumstances, I find that it is sufficient for the employer to simply have paid more than the correct amounts without the exclusion of the RAA as has been done by the employer.
36 In accordance with Hryniak v. Mauldin, 2014 SCC 7 (S.C.C.) , I find that the record before me is sufficiently complete to allow me to make a fair and just disposition on the merits, and that there are no material facts in dispute. Accordingly, I grant Trican’s application for summary dismissal. It has more than met its obligations under the employment agreement, as affected by the Employment Standards Code, and it has exceeded the minimum standards required under the Employment Standards Code when wages are properly calculated. There is an enforceable notice period provision in the employment contract. Trican has paid 60 days of payment in lieu of notice (including the RAA) when it was obliged to pay 44 days (including the RAA) having given 16 days of working notice. There are no further issues that remain.

At first blush this case looks like it is a license for employers to avoid illegal contracts by simply having the Court correct the contract by insuring that the Employer pays no less than the ESA.

However in this  case, the contract provided that the Employer had to pay 60 days of base pay, whereby the ESA provided that they had to pay 44 days of base pay plus the shift allowance. The base wage was $110,652 thus 60 days of that wage would equal $25,535 whereas 44 days of the full wage of $138,315 would be equal to $23,407.

In other words, at the end of the day, the contract termination amount exceeded the ESA minimum amount, so of course, the contract did not violate the ESA.

Therefore the Master’s comments would seem to be unnecessary verbiage ( obiter dicta ) and as such probably do not change the law on the enforceability of illegal ESA contracts.

Moreover some of the Masters comments are troubling from a policy perspective :

1) “There was no suggestion in the evidence or argument that anyone was attempting to intentionally avoid the provisions of the Employment Standards Code in the drafting of the payment in lieu of notice provisions.”

Why would this matter? How could any employee have evidence of the motivation behind a contract clause drafted by the Employer? Surely we look at the effect of the contract and not the motivation of the drafter.

2) Although the contract provided that the allowance ( RAA) was not to be included in calculating termination pay, in fact it seems that when actually paying out the termination pay, the Employer did include the RAA. The Court seemed to take that into effect when it decided that the termination provision was valid. However when examining the legality of a contract, you are only to look at its language, not how  one party acted on the contract. To do otherwise would mean that an Employer could avoid a finding of illegality by simply paying the ESA amount even though the contract called for a lesser payment. This is exactly the policy evil that the Supreme Court of Canada was trying to stop in Machtinger.