Jan 31st, 2022
Nov 19th, 2018
By Barry Landy
It may have happened to you. You are in charge of negotiating and signing an important contract and sure enough, something unintended (and really bad) slips through the cracks.
That was the case in Langlais v. Sennheiser Canada inc. 2018 QCCS 4695.
IN 1995, Langlais initially signed a 3 year employment contract with Sennheiser providing for one year of severance pay in the event of dismissal. He then signed several other replacement employment contracts with a term, and different contract renewals. Sennheiser grew from a small family company to an industry leader and Langlais wanted a new employment contract to secure his future. He eventually discussed terms of a new contract with his immediate boss and finally reached a satisfactory new agreement. After extensive negotiations and the exchange of a number of drafts, in June 2010, the parties signed a contract that clearly provided that Sennheiser could only terminate Langlais without cause by paying him an amount equal to 12 months of pay per service year.
When the employer and employee eventually had a falling-out in 2016, Langlais sued claiming he was entitled to a 21 year notice period or 21 years of remuneration in lieu of notice in virtue of the employment contract.
Sennheiser admitted that Langlais’s employment contract was for an indeterminate term and that he had been dismissed without cause and then offered him 21 months of severance, not 21 years of severance (basically one month of severance for every year of service).
For his part, Langlais argued the termination clause in his employment contract was clear, extensively negotiated, agreed to and contained in a written contract, initialed on each page and duly signed by authorized Sennheiser senior executives. Sennheiser argued the clause was ambiguous, but even if it was clear, that it should be canceled.
As a general rule, courts do not have the power to change the terms of a valid contract between consenting parties, especially where the text of the clause in question is clear and unequivocal.
On the other hand, courts do have the power to assess if a clause is clear or ambiguous and in the event of ambiguity, to look for the true contractual intention of the parties. Furthermore, even if a clause is clear on its face, in civil law, this is not the end of the inquiry. A clearly drafted clause may not reflect the true intention of the parties. In other words, the parties may have written a text that is clear and precise, but which nevertheless does not correspond with what they intended. They may have erred. How does one resolve the difficulty if the contract contains a clause that does not reflect the agreement of the parties? Quebec civil law replies by saying that one must interpret a clause in a contract, even a clear clause, if the clause cannot be reconciled with the nature of the contract and with what the parties truly intended.
The court will look for indices that the parties may have had a true intention that was different than what they expressed in a clearly drafted clause, which of course, is a delicate exercise, to say the least. It amounts to trying to discover an objective common intention of the parties, which in turn amounts to trying to reconcile the clear words used in the contract with other elements, such as the behaviour of the parties, the nature of the contract, the circumstances that prevailed when it was signed, the rationality of the result obtained by applying the clause and even common usage.
In Mr. Langlais’s case, the Judge held that a 24 year severance period simply did not make sense, in the context where in Quebec, with very rare exceptions, the maximum severance period for a dismissal without cause does not exceed 24 months. He also took note that such a long severance period would sterilize Sennheiser’s right to dismiss Langlais and that when the agreement was signed a severance period of one year per year of service, was totally outside any company norm that existed at the time. The testimony of Sennheiser’s representative was “I made a really stupid mistake.” Interestingly enough, despite the fact that Sennheiser pleaded it had made an error, the court found that this was insufficient to cancel the severance aspect of the employment agreement because the error was so gross, it was inexcusable.
While Langlais testified that he was looking for long-term security when he signed his employment contract and protection in the event of unjust dismissal, the court did not believe him when he testified that the parties really intended to provide him with one year of severance per year of service.
In the result, the incompetence or lack of attention of Sennheiser’s human resources manager, Sennheiser’s Ontario lawyer and 2 Sennheiser board members led to three years of litigation over a clearly drafted severance clause which if applied, gave rise to what the court believed would be an absurd result.
The moral of the story: Contracts don’t always mean what they say, even if they contain clear language. Caution and the application of good judgment is advised.
This publication is of a general nature, is as of the date indicated and is not intended to constitute an opinion or legal advice. The facts and circumstances of your particular situation should be specifically identified and addressed before appropriate legal advice may be given.