What of Other Terms

The decided line of cases inevitably has originated from the push and pull of the respective parties on the issue of a pre-determined contractual severance payment. The logic of the substratum plea strikes a chord in the instance of this debate on the severance payment. It will make no sense for a more senior responsibility to be attached to the severance sum which was contracted as fair between the parties for the lesser position.

There is little authority on the issue of other terms which may have been negotiated in the original contract. What may be said of a fairly negotiated non-compete or a non-solicitation covenant when a more senior position of authority has been given ? The evident unfairness of the severance plea is not manifest in this context. If anything, the employer may argue with a forceful logic that the more senior responsibility is still deserving, perhaps even more so, of the protections of the restrictive covenant.

The same argument may apply to the fact situation outlined in Rasanen ¹ where the more senior position has attached to it a restrictive covenant. A demoted position may allow for the argument that such a term should not apply to the position of lesser consequence.

The theory of the substratum submission, however, is not simply that the severance term has been ousted, but rather that the entire agreement, usually written, has been usurped by the new position. This plea may make more sense for the Rasanen argument with the restrictive covenant.

The sole case to debate this issue did not decide the law. The decision of the Alberta Queen’s Bench in Jardine Lloyd Thomson Canada Inc. v  Harke-Hunt involved a request for an interlocutory injunction, which was declined on the issue of the employment contract, based on the argument that the agreement from which the restrictive covenant originated had expired due to the substratum plea in a traditional promotion case. The Court noted that the plea required further definition prior to determining this issue:

  Based on my review of the evidence presented in this application and the consideration of both parties’ submissions, it remains unclear to this Court whether the Employment Agreement and the restrictive covenants therein are valid or not. This conclusion derives from the absence of clear evidence on all the circumstances surrounding the corporate transactions and developments that led to the transformation of  LW&R into JLT or made JLT acquire the status of a successor corporation to LW&R. Was that business arrangement between JLT and LW&R a merger, a take-over, an acquisition or a simple assignment of assets and liabilities from one corporation to the other?

[29]           Further, given the multinational/global nature of the JLT Group, is it accurate or not to conclude, on the basis of this evidence, that the whole substratum of Ms. Harke’s employment has disappeared and her original employment contract with LW&R (a regional, corporation operating in BC and Alberta) was no longer enforceable at the time she resigned at JLT? Was the initial employment contract between Ms. Harke and LR&W intended to apply to the position Ms. Harke occupied at her resignation at JLT? In my view, these questions are legitimate and deserve answers which this Court cannot provide on the basis of the facts and evidence presently before it.

Severability of the Term

There has been no discussion of the impact of a severability clause in the substratum cases. It may be argued that such a clause would allow a court to excise one clause, such as the severance provision and maintain the restrictive covenant as it may apply to the more senior position. This would appear, at first blush, to be a long shot argument as the substratum plea concludes that the entire agreement cannot be enforced due to the fundamental change in the relationship.

The agreement should likely contemplate the possible variation and address which covenants will survive the change in responsibility, which would avoid the substratum argument altogether.