Just for Laughs - Quebec Court of Appeal confirms validity of lifetime employment contract

In July 2022, in a unique and unusual case, the Superior Court handed down a decision challenging what was believed to be a well-established labour relations principle.¹ 

While the civil courts had always refused to reinstate employees, Judge Saint-Pierre surprised many by finding that an employer had waived its right to terminate an employee’s contract and ordering that the employee in question be reinstated.

Unhappy with this finding, the employer appealed the decision.

In a highly anticipated decision, the Quebec Court of Appeal overturned the trial judge’s decision.² However, the court came to several unusual conclusions.

Background

Mr. André Gloutnay (the Employee) began his career at Just For Laughs in 1993 as an archivist and a documentalist for the Just For Laughs Museum. Gilbert Rozon, the former president of Just for Laughs, recognized the importance of the Employee's encyclopedic knowledge and had him sign several contracts over the years, most notably a contract in 2004 in which he was guaranteed a job for life. In return, the Employee agreed to assign his rights to his archive collections to Mr. Rozon.

However, years later, a few months after Mr. Rozon had resigned, Just For Laughs laid off several people, including the Employee. At the meeting to announce his termination, the Employee reminded them he had been guaranteed a job for life in 2004. However, Just for Laughs refused to keep the Employee in his position and confirmed his termination. He received severance pay equal to 12 months’ salary.

The Employee wished to continue working for Just for Laughs in his current capacity and turned to the Superior Court, which ruled he should be reinstated. Just for Laughs appealed this decision.

Quebec Court of Appeal decision

In a unanimous decision, the three Quebec Court of Appeal judges reached several unusual conclusions:

1. The contract signed in 2004 is neither a contract of employment for a fixed term nor for an indeterminate term. Rather, it is a sui generis contract;
2. The trial judge could not order that the Employee be reinstated because his position had been abolished and due to the particular skills for which he had been hired;
3. The Employee is entitled to severance pay equal to 10.75 years of salary.

The nature of the contract entered into in 2004

According to the Civil Code of Québec, the term of an employment contract is either fixed (e.g., two years) or indeterminate. On the one hand, when the contract is for an indeterminate term, the employer can terminate the employment without cause by providing reasonable notice or payment in lieu thereof. On the other hand, when the contract is for a fixed term, the employer cannot terminate the contract without cause before the end of the term. If the employment is terminated, the employee must be compensated for the prejudice.

However, the Court of Appeal determined that the contract signed in 2004 does not fall into either category. According to the judges, the contract is sui generis, meaning it does not correspond to any predefined category.

The court also found that by entering into this contract, Just for Laughs waived its right to terminate it and guaranteed a job for life in exchange for the rights to the Employee's archive collection. According to the Court of Appeal, such a contract is valid and is not contrary to public order.

The possibility of ordering the Employee’s reinstatement

Although the Court of Appeal confirmed that this was a guarantee of lifelong employment, it disagreed with the trial judge on the solution to be adopted. While the trial judge agreed to order the employee's reinstatement at Just for Laughs, the Court of Appeal found that this solution is not applicable.

In its reasons, the court cited certain authors who stated it is possible to order a company to integrate or retain an individual in certain cases. According to these authors, the following must be considered:

• the fact the employer is a legal person;
• the employer’s size; and
• the employee’s duties.

Moreover, the Court of Appeal specified that when the identity of the person with whom the employer entered into a contract is an essential element, the contract can be qualified as intuitu personae, which usually prevents the possibility of ordering that the employee be reinstated.

The Court of Appeal found that several of the above elements prevented the Employee from being reinstated. First, although the employer is a large corporation, the fact remains that because of the Employee's specific duties, which are no longer necessary given the elimination of his position, reinstatement would cause more inconvenience than benefits. Second, the contract is undeniably intuitu personae, as the Employee was hired specifically because of his unique encyclopedic knowledge. For these reasons, the Court of Appeal found it could not order that the Employee be reinstated. However, it does not seem to have closed the door on reinstatement under other circumstances.

Compensation

Since the Employee could not be reinstated, the court had to determine the compensation to which he was entitled. The court ruled that Just for Laughs must pay severance pay equal to the salary the Employee would have earned between the date of his termination and the time he planned to retire, i.e., at age 65. 

In the court's view, the particular circumstances of this case allow it to depart from the usual notice periods granted in other cases.

The Court of Appeal awarded the employee who earned an annual salary of $60,000 a total compensation of $660,500. The severance pay is equal to 10.75 years' salary, less what Just for Laughs had already paid the Employee.

Takeaway

This unique and unusual decision should serve as a reminder of the importance of being methodical when negotiating employment contracts with current or future employees. Whether written or verbal, promises made by an employer or its officers can have significant long-term consequences.

As for the legal consequences of the decision, it is still too early to tell whether the Quebec Court of Appeal's reasons will be used by other decision-makers to award more generous compensation or to order the reinstatement of employees.

In any event, the Quebec Court of Appeal's decision may still be challenged before the Supreme Court of Canada. We will continue to monitor this matter and update you, as applicable.