Follow Me on Twitter

Employer Held to ‘Wrong’ Interpretation of Contract by HR Manager

Thanks to lawyer Sean Bawden for Tweeting this peculiar little Court of Appeal decision that asks what happens when an HR manager provides an interpretation of a company benefits policy that is later rescinded by corporate head office.  We aren’t given a lot of facts, so I confess to having trouble sorting out what this case means.

The case is called Bennett v. Sears Canada.

Facts

Here’s what we are told.  Sears offers to continue coverage under its health and benefits plan to employees  who “retire from active employment with 20 years or more continuous full-time service.” It’s not clear from the decision if that requirement appears in the employment contract itself, or in some other ancillary document like a benefits pamphlet.   Bennet worked for the company for some 32 years before she was terminated.  However, 22 of those years were part-time.  Therefore, on a clear reading of the retirement benefits requirements, she was not entitled to coverage (having worked only 10 years full-time).

However, in 2005, four years before she was dismissed, she asked the HR department whether she would be eligible for retirement benefits coverage.  The answer came in an email, and it said that her part-time years would be prorated and added to the full-time years, with the result that she was then at about 17 years service.  Therefore, she was told, she needed another 3 year’s service to be qualify.  She worked another 4 years.  After she was given her notice of termination, she was again told by an HR person that she had qualified for the benefits.

However, after her termination, she was told by another HR rep that she did not qualify for the benefits because she had not worked 20 continuous full-time years.  Any advice she had been given otherwise was incorrect.  She sued, seeking to enforce the earlier promise that her part-time years would count towards calculating years of full-time service.

Issue:  Is the interpretation of the policy given initially by the HR staff enforceable?

The lower court, confirmed by the Court of Appeal, ruled that it was.  The lower court judge wrote:

In the case at hand … the plaintiff says that agreement reached in the formative discussion stages between the plaintiff and the HR office at Sears was plainly that commutation of her part-time services would entitle her to full pension benefits, upon her working for an additional approximate three years, which she did.

So the court enforces the interpretation by an HR rep in 2005, even though the employer later said that interpretation was wrong on the plain language of the policy.

Discussion

The obvious lesson for my HR students is to be careful what you tell employees about the meaning of the contract.  However, I confess to being uncertain about this case because of how little information we are given. There are some fun issues in this case for law students.

Firstly, the qualifying language seems to be unambiguous, doesn’t it?  ”Twenty years continuous full-time employment” would in normal conversation usually be understood to refer to “full-time” employment and not part-time employment.  So the original interpretation by the HR department that was eventually enforced by the court is an unexpected interpretation.  It contradicts the clear language of the contract. The question I have is on what basis does an HR rep’s views on the interpretation of a contract provision (assuming the qualifications are in a contract) become admissible and enforceable on the issue of the legal meaning of an unambiguous contract term?

Is this a parol evidence rule issue?  Remember that rule from evidence class?  It says that extrinsic evidence is not admissible to contradict or vary clear contract language.  If a contract says you only get a benefit if you work ‘full-time’, on what basis does the court rely on a comment by an employee stating that, in fact, part-time work is also included?  Is ’20 years continuous full-time employment’ ambiguous (unclear)?  If so, then the court can permit other evidence to help clarify the meaning of the language.  Is that what happened here?

Or, perhaps what the court found is not that the HR rep’s interpretation overrides the clear language, but instead that the HR rep effectively amended the contract term to read in part-time employment as well, which amendment was accepted by the employee.  The difficulty with that position would relate to the requirement for there to be ‘mutual consideration‘ to create an enforceable contract amendment.  Changing ‘full-time employment’ to ‘part-time and full-time employment’ is a new benefit for the employee.  But what new benefit (new ‘consideration’) did the employer receive as a result of this amendment? There are lots of employment law cases in which courts have decided that a contract amendment that lacks mutual consideration is unenforceable.

I don’t have a problem with giving a 32 year service employee access to retirement benefits.  I think she earned it, and Sears can no doubt afford to give her the benefits.  However, from a contract law perspective, I have some doubts about this case.  What do you think?  Did the Court get this one right?

Socialize

2 Responses to Employer Held to ‘Wrong’ Interpretation of Contract by HR Manager

  1. slantendicular Reply

    June 19, 2012 at 1:48 am

    This seems like an application of the equitable doctrine of estoppel. The requirements are summarized by Brown & Beatty as follows:

    The essentials of estoppel are: a clear and unequivocal representation, particularly where the representation occurs in the context of bargaining; which may be made by words or conduct; or in some circumstances it may result from silence or acquiescence; intended to be relied on by the party to whom it was directed; although that intention may be inferred from what reasonably should have been understood; some reliance in the form of some action or inaction; and detriment resulting therefrom.

    Here we have:
    1. A clear and unequivocal representation made by words
    2. Intended to be relied upon by the party to whom it was directed
    3. Reliance in the form of inaction (i.e. staying at the job)
    4. Detriment

    Point number 3 above seems the weakest. Was there really reliance?

  2. slantendicular Reply

    June 19, 2012 at 7:47 pm

    (on second thought, that would consist of using promissory estoppel as a sword, not a shield – something not allowed)

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>