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The HR Space: U.S. Employment Agreement Ruled Inapplicable in B.C.

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Labour, Employment and Human Rights Bulletin

The HR Space is edited by Louise Béchamp, Karen M. Sargeant and Brian P. Smeenk 

When an employee has two employers, one American and one Canadian, the language of an employment agreement that deals with termination entitlements will only take you so far. A recent case decided by the British Columbia Court of Appeal, Stanley v. Advertising Directory Solutions, found that an employee of a US company who was working for a Canadian subsidiary, is entitled to notice upon the termination according to Canadian law. This despite a written agreement that indicated otherwise. 

The court ruled that an agreement with a US parent company will not permit a Canadian company, which is also the person’s employer, to avoid its obligation to provide reasonable notice or pay in lieu of notice of termination.

The US-based employee, Susan Stanley, was a Canadian citizen. She was employed by Verizon Communications Inc. in its Texas office. She was offered a promotion to a position in Vancouver for Verizon’s Canadian subsidiary, Dominion Directory Company Ltd.  At the time of the transfer from the US to Canada, Susan agreed to the terms of a letter written on Verizon letterhead. It said that while on assignment in Canada, she would remain an employee of Verizon. Her employment would be “at will” (that is, there would be no obligation on the employer to provide notice or pay in lieu of notice for a dismissal without cause).

Once in Canada and on Dominion’s payroll, Susan worked hard to further its business interests. She reported to Dominion’s Canada-based president. A few years into Susan’s tenure in Canada, Dominion was sold by Verizon to Bain Capital. Susan’s employment was terminated in a meeting attended by both Dominion’s HR manager and, by teleconference, Verizon’s HR manager. 

Susan sued Dominion (but not Verizon) for damages arising out of the termination of her employment.

In court, much turned on who was the true employer. The trial judge concluded that Susan was an employee of Verizon in the US. Since she was not employed by Dominion, she was not entitled to any notice of termination under Canadian law. Stanley appealed. The B.C. Court of Appeal considered whether the fact that the employment agreement was formed in Texas but performed in British Columbia meant that the proper law of the contract was that of British Columbia, and not that of Texas.  It ruled that British Columbia law applies. So the Texas employment agreement that purported to find Susan to be an employee at will was null and void, as rights under BC’s Employment Standards Act (“ESA”) cannot be waived.

The appeal court also ruled that an employee can have more than one employer. While it may be contended that Susan was employed by both Verizon and Dominion, it could not be seriously argued that she was not employed by Dominion. Thus B.C.’s ESA applied to her. The employment at will condition was inconsistent with the ESA. The agreement entered into in Texas was thus set aside. Susan was entitled to reasonable notice under Canadian common law, by her Canadian employer, Dominion. The appeal court sent the matter back to the trial court for its determination of the reasonable notice period.

The lessons from this case are as follows:

  • Do not assume that an employment agreement entered into in one country is going to apply in total if the employee is transferred to another country to work for a subsidiary. 
  • Employers should carefully review all contracts and secondment agreements, to make sure they will not be ruled void if they run afoul of applicable minimum standards legislation. Very clear language is needed regarding what law will apply and where any dispute is to be litigated.
  • Do not assume that an employee can only have one employer. In fact, depending on the facts, an employee may have multiple employers, as was the case here. Again, however, this result may be avoided by an expertly drafted contract.

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