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Fixed-Term Contracts: When Can Aggravated Damages Be Awarded in Wrongful Dismissal Cases? 

In the recent case of Quach v. Mitrux Services Ltd., 2020 BCCA 25 (CanLII), the British Colombia Court of Appeal clarified how mitigation applies to fixed-term contracts, commented on when aggravated damages may be awarded in wrongful dismissal cases, and mused about the necessity of fresh consideration to ensure the enforceability of new contractual terms.

In this case, the dispute between the parties arose when Mr. Quach’s employment was terminated prior to his start date. Mr. Quach had initially entered into a fixed-term employment contract, drafted by his lawyers, with a termination provision that allowed the employer to terminate employment by paying out the remainder of fixed-term. After the contract was signed, the employer had misgivings about the fixed-term and required Mr. Quach to enter into a new contract to waive the first agreement and provide for indefinite employment with termination of employment by the employer without cause on four weeks’ notice. At trial, the employer alleged that fresh consideration for the new contract had been provided to Mr. Quach in the form of payment of his legal fees incurred for preparation of the first contract and by waiver of the probationary requirements under employment standards legislation. However, the employer never paid the legal fees and the court found that the waiver of the probationary requirements had no value. Accordingly, the court found that there was no new consideration for replacing the first contract and the second contract was unenforceable. This finding was upheld on appeal.

The Court of Appeal pondered whether fresh consideration was in fact needed for new contractual terms in the employment context. For many years, the courts in British Columbia and elsewhere had held that some benefit or “consideration” must be provided to an employee for new terms. Recently, however, in the case of Rosas v. Toca, 2018 BCCA 191 (CanLII), the BC Court of Appeal suggested that absent unconscionability, duress, or public policy concerns, parties who have agreed to new contractual terms, even in the absence of consideration, should be held to their bargain. Without deciding the issue, the court in Quach mused that in the “nuanced world of employer and employee contractual relationships” Rosas might not change the traditional view that consideration is required.

Further, with respect to the application of mitigation to fixed-term contracts, the court distinguished the law in British Columbia from that in Ontario. Without resolving whether there is a duty to mitigate, the court affirmed its earlier decisions holding that a fixed-term contract containing no specific termination provision is subject to the normal rules of mitigation. That is, to the extent the dismissed employee finds a job prior to what would have been the end of the contract term had the employee remained employed, then the employer will be able to offset the amounts earned by the former employee against the payments that would have otherwise been owing for the remainder of the term.

Finally, in overturning the trial judge’s award of aggravated damages, the Court of Appeal confirmed that an employee must show both bad faith in the manner of termination, and a serious and prolonged personal disruption that transcends ordinary emotional upset or distress. The court held that the demeanour of a former employee on the witness stand alone is an insufficient basis for a finding of the requisite distress. In the current case, the court held that the former employee’s “devastation” and “feeling of strong dismay and anxiety for himself and family” was not “beyond the normal distress and hurt feelings” that accompany any dismissal and accordingly were not compensable. The court held that “evidence more than the normal transitory dismay, stress and anxiety is required to satisfy the second condition of the test for aggravated damages”. The quality of Quach’s response did not equate to the sort of mental distress required for an award of aggravated damages.

This case provides a number of important takeaways for employers. First, the prudent employer will always provide some sort of fresh benefit or “consideration” to an employee when offering new contractual terms.

Second, although the court has clarified that an employer will receive the benefit of mitigation in respect of a fixed-term contract containing no specific termination provision, one must still question what the benefit of a fixed-term contract is to the employer. In this regard, please see our earlier blog entitled Fixed-Term Contracts: Not as Advertised.

Third, the Court of Appeal appears to be signalling a reluctance to uphold awards of aggravated damages where there is no evidence of significant mental distress. While it remains the case that a dismissed employee may prove such distress without specific medical evidence, the court appears to be taking a more jaundiced view of claims by employees unsupported by medical or other corroborating evidence.

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Lawson Lundell's Labour and Employment Law Blog provides updates on the most recent legal developments impacting the Canadian workplace and offers practical tips for employers. We cover a range of topics, including labour relations, employment law, collective bargaining, human rights, employment standards, employment equity, workers' compensation, business immigration, privacy, occupational health and safety and pensions and employee benefits. 

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