If you know me, you'll know that I am (and always have been ) a proponentof written employment agreements (and by “agreement” I don’t necessarily mean a 20 page legalese document). Substance is more important than form, ensuring that the contract is legally enforceable, clear and unambiguous is the objective.
When I started practicing, written employment contracts were reserved for the most senior executives. That has changed, partly as employers and employees become increasingly aware of their rights and the risks associated with not having a written contract in place have escalated incrementally.
Recent Case
The recent case of McNeely v. Herbal Magic Inc. is yet another in a long line of cases that clearly demonstrate that a properly drafted and entered into employment contract can be a strong defence to a variety of costly employment claims.
The plaintiff “claims damages against the defendants for breach of a collateral agreement and negligent misrepresentation arising from the termination of his employment and his removal from the board of directors of the defendant, Herbal Magic Inc.”
The company and the individual defendant moved for summary judgment under the Rules of Civil Procedure.
The plaintiff alleged that certain representations were made to him during the months leading to the acquisition of the company (see paragraph 4 of the case). He alleged that the individual defendant’s statements,
“assured him that the defendants intended him to be a long-term senior employee of the new company with a say in the ongoing operation and direction of the company as a member of its board of directors.”
Although the plaintiff did become president and chief executive officer and a member of the board of directors of the new company, his employment was terminated after 7 months later and he was removed from the company’s board of directors by the defendants.
He argued, therefore, that the representations made to him were not true and brought his claim. Specifically, he alleged that "he invested $2.5 million in the new company on the “faith and strength” of [the individual defendant's] representations that he would be a director of the company and he alleges that [the individual defendant's] statements constituted a collateral agreement and a negligent misrepresentation.
The Contract
Following the acquisition and upon becoming the president of the company, he signed an employment agreement that included an entire agreement clause:
“This Agreement constitutes the entire agreement among the Parties hereto with regard to the subject matter hereof and supersedes all prior agreements, understandings, representations or warranties, negotiations and discussions, whether oral or written, among the Parties hereto with respect thereto, including without limitation, any agreements among the shareholders of the Corporation entered into prior to the date hereof, which are hereby terminated.”
Parenthetically, many employers view this clause as "boilerplate" but, as will be seen, contractual provisions have a legal meaning and will be enforced where they are clear, demonstrate a common intention and where the contract is properly entered into.
Interpretation of the Provision
The defendants acknowledged that the statements alleged were made; they argued, though, that the plaintiff could not rely upon them because the contract contained an entire agreement provision.
The court agreed:
In my view, the clauses demonstrate that the parties intended that the written agreements represented their entire agreement notwithstanding any prior oral representations or discussions regarding the subject matter of the agreements. Rutherford J.’s reasoning in the Dunlop case applies equally to the facts of this case and I find that a commercially reasonable interpretation of the entire agreement clauses precludes a negligent misrepresentation claim based upon any pre-contractual discussions, including [the individual defendant’s] statements to [the plaintiff].
The case is also instructive in its discussion of the circumstances in which claims can be brought against officers and employees. The leading case is ScotiaMcLeod Inc. v. Peoples Jewellers Ltd. where the Ontario Court of Appeal held:
The decided cases in which employees and officers of companies have been found personally liable for actions ostensibly carried out under a corporate name are fact-specific. In the absence of findings of fraud, deceit, dishonesty or want of authority on the part of employees or officers, they are also rare. … In every case, however, the facts giving rise to personal liability were specifically pleaded. Absent allegations which fit within the categories described above, officers or employees of limited companies are protected from personal liability unless it can be shown that their actions are themselves tortious or exhibit a separate identity or interest from that of the company so as to make the act or conduct complained of their own.
More recently, ADGA Systems International Ltd. v. Valcom Ltd..
Conclusion
The Court concluded that the entire agreement clause was fatal to the claims against all defendant, the court granted the summary judgment motion and dismissed the claims against all defendants.
The Court, once again, demonstrated that it will enforce properly drafted and entered into employment contracts even where doing so has adverse implications for one or the other of the parties.
The lesson is clear - get expert advice, and enter into carefully drafted, legally compliant and properly entered into written employment contracts in every case. To do otherwise leaves much to chance and in todays litigious employment environment, any opportunity to bring clarity and certainty to the relationship should be exercised.
