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Employment Contract Limiting Severance Not Unconscionable
March 24, 2006

The B.C. Supreme Court has ruled that a severance provision in an employment contract is not unconscionable simply because it offers less severance than the employee could expect to receive at common law.

The decision arose from a dismissed employee’s claim that the notice provisions contained in his contract of employment should be struck down as unconscionable. The 58-year old former chief information officer had signed an employment contract containing a provision limiting his entitlement to severance to one week per year of employment.

Provided that a defined notice period or severance clause complies with the minimums required by the Employment Standards Act, the Court held that the contract will not be unconscionable solely on the basis that it offers less notice or severance than the employee could expect to receive at common law. The Court stated that in order to find an agreement unconscionable, the evidence must establish:

  • An inequality of bargaining position arising out of ignorance, need or distress of the weaker party;
  • The stronger party unconscientiously used a position of power to achieve an advantage, and;
  • The agreement reached is substantially unfair to the weaker party.

The former employee claimed that the company should have pointed out the strengths and weaknesses of each provision in the contract. The Court rejected this argument, commenting that it is sufficient for a prospective employer to simply provide time for the prospective employee to review the proposed contract in the absence of any influence by the employer, and to be provided with the opportunity to seek independent advice.

The Court concluded that the agreement was not made unconscionable simply because the former employee made choices which he later regretted.

Finlan v. Ritchie Bros. Auctioneers (Canada) Ltd. [2006] B.C.S.C. 291