Globalization and the tech-based advances that characterize today’s business world have accelerated the trend for businesses, employers and employees alike to cross borders. These new realities also increase the likelihood that employment relationships—and possibly related disputes—will stretch across a number of jurisdictions.
Many jurisdictions have employment legislation aimed at protecting employees in their inherently unequal bargaining position with employers. However, despite legislated standards and conditions of employment and the related public policy considerations often at play, the employment relationship—at its core—is a contractual one.
This gives employers and employees the opportunity to define their relationship through the contract; the inclusion of “choice of law” clauses can be an important aspect. In fact, the global responsibilities and mobility of both employers and employees demands careful consideration of these clauses in modern employment contracts.
A choice of law clause allows parties to select the law they want—whether domestic or foreign—to apply to their contract in its entirety or just parts of it. The ability to specify which law to apply to potential disputes conforms with fundamental principles of contract law by giving increased predictability and certainty to the interpretation of a contract. However, because of the public policy considerations that employment contracts attract, it can be uncertain to what extent B.C. and other Canadian courts will enforce choice of law clauses in favour of a foreign jurisdiction.
In a 1986 case, Avenue Properties Ltd. v. First City Development Corp., the B.C. Court of Appeal held that a court can override a choice of law clause and apply the local law in two circumstances:
- where the local law is procedural; and
- where the local law is of such a nature that it should be applied.
The latter would apply where legislation specifically states that certain provisions apply, notwithstanding a choice of law clause or other overriding public policy considerations.
B.C.’s Employment Standards Act states that an agreement to waive any of the requirements of the Act has no effect. Courts in B.C. have held that a choice of law clause designed to attempt to avoid the reach of the Act will not be enforced. This was the case in Farough v. Financial Control Industries Inc.
On the other hand, in some cases the employer and employee may have a legitimate interest in choosing a different law to govern their relationship both during and after employment. For example, agreements regarding non-competition, non-solicitation and confidentiality that are not governed by the Act instead may be governed by a choice of law for a foreign jurisdiction, which can differ significantly from local laws.
As courts aim to give effect to the express intentions of parties to a contract, a clear choice of law clause in an employment contract will be a critical factor for a court to consider when determining what law to apply to a dispute between the parties.
Courts will ultimately search for connections between the contract and different jurisdictions to determine which law should be applied. However, if an employee signs his or her employment contract in one jurisdiction, does work in several different jurisdictions and the employer is based in yet another place—and the employment contract is silent as to which law should apply to interpret the contract—the resulting analysis and outcome is unpredictable. This may lead to increases in the length and complexity of any dispute.
For modern employment contracts to meet the many demands of employment law, contract law and private international law, all terms must be drafted carefully and strategically to be effective. Consideration should be given to choice of law issues. The effect of a choice of law clause and all circumstances of the employment contract must be taken into consideration when venturing into this complex and evolving area.
See Letter of the Law Winter 2016 for a related topic: Non-competition clauses in the age of e-commerce.