What’s in a Name? When is an Offer Letter Truly an Employment Contract?
By Fasken - Matthew Larsen, Associate; and Zaira Petruf, Student
What is the value of an offer letter and does it come with any risks? Court rules that a service agreement signed by an employee is unenforceable and that parties are bound by an offer letter.
Overview
Nowak v. Biocomposites Inc., 2018 BCSC 785, a decision of the BC Supreme Court released on May 11, 2018, highlights some basic principles that every employer should keep in mind when extending an offer to a new employee. The Nowak decision also provides valuable lessons for companies from other jurisdictions who are considering hiring employees in BC.
Facts
Mr. Nowak, worked as a salesperson in British Columbia (“BC”) for Biocomposites Inc. (“Biocomposites”), the North American arm of a company based in the United Kingdom. Mr. Nowak was Biocomposites’ only employee in BC. Much of the North American workforce was located in North Carolina.
Following an interview process, Mr. Nowak accepted a verbal offer of employment on April 28, 2016. Biocomposites sent Mr. Nowak an offer letter by e-mail on May 4, 2016, which included a start date of May 16, basic terms of employment, and a statement that the terms of employment would be detailed in a service agreement. Mr. Nowak started work on May 16. He received the service agreement three weeks after his start date. The service agreement contained terms that had not been included in the offer letter, including a term that the contract was subject to the laws of North Carolina and that lawsuits fall exclusively under that jurisdiction. Mr. Nowak signed and returned the service agreement.
Biocomposites terminated Mr. Nowak’s employment on June 21, 2017. Mr. Nowak commenced a lawsuit in BC. There was a dispute between the parties about which agreement governed the employment relationship: the offer letter or the service agreement. Mr. Nowak argued the service agreement was not enforceable, including the term that the contract was subject to the laws and jurisdiction of North Carolina, and that his lawsuit should be heard by BC courts.
Decision
The Court found that the offer letter was an enforceable contract. By contrast, the service agreement was not an enforceable contract because it was signed after Mr. Nowak had started working and he had not been provided fresh consideration (i.e. something of value) for signing the service agreement. Accordingly, the clauses in the service agreement, including those that said that the employment relationship was subject to the laws of North Carolina and that lawsuits fall exclusively under that jurisdiction, were not enforceable. Instead, Mr. Nowak’s employment with Biocomposites was subject to BC law, which is much more generous to employees. The Court also noted that the employment was performed in BC, and there was inequality of bargaining power between the parties.
Takeaways
Always have a signed contract in place before employment begins
The Nowak decision highlights the risk that a court will find that a contract is not enforceable if it is signed after employment has begun. We recommend that employers make it a standard practice to require that employees return a signed employment agreement before they are permitted to begin work.
Exercise caution if you are going to use offer letters
The risk with first providing an employee with an offer letter, which sets out some terms of employment, and then following-up after with an employment contract, is that a court may find that the offer letter is in fact an employment contract and that the subsequent contract is therefore not enforceable. If you choose to provide an offer letter followed by a contract, we strongly recommend that the offer letter contain clear language that the offer letter is not an offer of employment, that it contains only some, but not all, of the terms of employment, and that employment is contingent on the employee signing an employment contract.
Courts are reluctant to enforce choice of law clauses that will benefit an employer
This decision provides some guidance about how BC courts are likely to approach forum clauses in employment contracts. There is risk that a BC court may choose not to enforce a clause that purports to make an employment contract subject to the laws of another jurisdiction. Accordingly, an out-of-province company seeking to operate in BC may be well advised to draft an employment contract that takes into account BC employment laws and which contains appropriate safeguards.