Why An Oral Employment Contract is a Bad Idea

by | Jun 23, 2016 | For Employers

We’ve written before on the importance of requiring new hires to sign an employment contract which contains a termination clause. In a recent decision from British Columbia, one employer learned this lesson the hard way.

James v The Hollypark Organization Inc.

The Facts

The Hollypark Organization Inc. was run by Mr. Dhillon, a 25-year old entrepreneur who wanted to open a new hotel under the Marriott franchise. Mr. Dhillon hired Ms. James, who was familiar with the Marriott brand, as a general manager. Ms. James was not required to sign an employment contract.

For the first year of her employment, Ms. James worked to help set up the new hotel. A month after the hotel opened, she was terminated. Ms. James sued Hollypark, claiming that they had agreed she would continue working at the hotel for the first year after it opened. Hollypark denied the parties had an oral employment contract.

The Decision

Due to the lack of a written agreement, the Court looked at external evidence to decide whether Ms. James was right in arguing that she had a one-year oral employment contract. Examples of this external evidence and considerations were:

● Mr. Dhillon’s young age and lack of experience with the Marriott brand.
● the fact that Ms. James committed to a one-year lease on a home
● the fact that Ms. James ordered 500 business cards for her position of general manager.

The Court found that such evidence was consistent with a one year contract which started the day the hotel opened. In cases of fixed term contracts, a dismissed employee will generally be entitled to the unexpired portion of the contract. Given that Ms. James was terminated one month into the contract, Hollypark owed Ms. James 11 months’ salary.

On Mitigation

As we have written before, an employee who has been dismissed has a legal obligation to take reasonable steps to look for a new job. This legal obligation is known as the “duty to mitigate.” Hollypark claimed that even if a contract existed between the company and Ms. James, she failed to mitigate her damages when she chose to fly to Mexico and spend the entire winter there.

The Court found that even though she moved to Mexico for the winter, Ms. James did not fail to mitigate as she had searched for jobs online and networked with contacts in the industry. The Court noted that in today’s world, “a person can reach out to contacts and search for jobs from a variety of locations.”

Lessons to be learned

1. It is a good idea to require new employees to sign an employment contract with a termination clause.
2. Fixed-term employment contracts are a bad idea. If the Court had not found Ms. James had a fixed-term one-year contract, it is likely she would have only been entitled to a few months’ notice, rather than eleven months.
3. In this digital age, judges will recognise that dismissed employees can mitigate their losses by applying for jobs, networking and interviewing remotely.

The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.



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