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CANADIAN HR LAW
Apr 11, 2013

How dusty are your employment contracts?

As 2 recent rulings prove, the law evolves – so language in templates need to be reviewed and updated regularly
    

By Stuart Rudner

I always advise employers not to use the same employment contract template for years without having it reviewed by an employment lawyer.

This applies even if it was originally drafted by an employment lawyer. While some have accused me of simply trying to ensure a continuing supply of work for myself, the reality is the law evolves and changes in the law can diminish the value of a previously reliable agreement.

Over the past year, we have seen two significant decisions where contractual clauses were interpreted contrary to the interests of the employer.

Last summer, I wrote about the Ontario Court of Appeal’s decision in Bowes v. Goss Power Products Ltd.; see http://www.hrreporter.com/blog/Canadian-HR-Law/archive/2012/07/09/check-your-employment-contracts. In that case, the court ruled that if an employment contract contains a termination clause, the employee will not be required to mitigate her damages by seeking new employment unless the clause specifically says so.

More recently the Ontario Superior Court of Justice rendered its decision in Stevens v. Sifton Properties Ltd., another case where the employer was seeking to enforce a termination clause in the employment contract. The worker mounted a number of attacks on the clause in a motion seeking summary judgment. While two of the arguments failed, the third was accepted by the court.

The clause in question read as follows:

13.  With respect to termination of employment, the following terms and conditions will apply:

(a)  The Corporation may terminate your employment for what it considers to be just cause without notice or payment in lieu of notice;

(b)  The Corporation may terminate your employment without cause at any time by providing you with notice or payment in lieu of notice, and/or severance pay, in accordance with the Employment Standards Act of Ontario.

(c)  You agree to accept the notice or payment in lieu of notice and/or severance pay referenced in paragraph 13(b) herein, in satisfaction of all claims and demands against the Corporation which may arise out of statute or common law with respect to the termination of your employment with the Corporation.

The argument focused on the fact the termination clause provided for pay in lieu of notice of termination, but did not provide for continuation of benefits. Although the employer did, in fact, continue the plaintiff`s benefits during the notice period, the plaintiff argued that by failing to require it, the contract provided for less than the employment standards act and was therefore unenforceable. Unfortunately, wording in the agreement which sought to explicitly limit the plaintiff`s entitlement in the event of dismissal to that provided for in the contract was a crucial factor in the court`s finding that the clause was unenforceable. As a result, the common law requirement of reasonable notice applied.

In the course of its decision, the court set out a handy review of the law with respect to the enforceability of termination clauses which is worth reproducing:

• In Canada, it has been established common law since at least 1936 that employment contracts for an indefinite period require the employer, absent express contractual language to the contrary, to give reasonable notice of an intention to terminate the contract if the dismissal is without cause. 

• The common law principle of termination only on reasonable notice is a presumption, rebuttable if the contract of employment clearly specifies some other period of notice, whether expressly or impliedly.

• If applicable employment standards legislation sets minimum requirements, but also provides that contracts specifying greater “benefits” to an employee prevail over the minimum standards in the legislation, the common law presumption of reasonable notice is such a “benefit”, (if the period of notice required by the presumption is greater than that required by the legislation), and the minimum notice periods set out in such legislation therefore do not by themselves operate to displace the presumption at common law of reasonable notice.

• While that presumption may be displaced by sufficiently clear contract language specifying notice periods shorter than that required by common law, applicable employment standards legislation prohibiting any attempt to contract out of the minimum standards required by the legislation renders any contract provisions providing for lesser benefits than the minimum standards “null and void.”

• If a clause in an employment contract is rendered “null and void” by operation of employment standards legislation, then it is null and void for all purposes, and cannot be used as evidence of the parties’ intention to displace the common law presumption of reasonable notice.  “If the intention of the parties is to make an unlawful contract, no lawful contractual term can be derived from their intention.”

• Work is fundamental to an individual’s identity, and the manner in which employment can be terminated is equally important. The “harm” targeted by remedial employment standards legislation is that individual employees, and in particular non-unionized employees, are often in an unequal bargaining position in relation to their employers.  Courts therefore should adopt a purposive approach to such legislation, favouring interpretations that encourage employers to comply with minimum requirements of the legislation, and so extend its protections to as many employees as possible.

•Consistent with such goals, if an employment contract fails to comply with the minimum requirements of employment standards legislation, the appropriate sanction or disposition is a finding that the presumption of reasonable notice has not been rebutted, (i.e., rather than an order that an employer minimally comply with the Act).  This gives employers an incentive to ensure that all aspects of employment contracts comply with the legislation, (to avoid the potentially longer notice periods required by common law), and in consequence more employees are likely to receive the benefit of the minimum notice requirements.

•Absent considerations of unconscionability, an employer can readily make contracts with his, her or its employees which referentially incorporate the minimum notice periods set out in employment standards legislation, or otherwise take into account later changes to such legislation or to the employees’ notice entitlement under the legislation.  Such contractual provisions are sufficient to displace the presumption that the contract is terminable without cause only on reasonable notice.

It is always advisable to use contracts of employment with termination provisions. However, it is never advisable to use precedents that were not designed for the parties in question, and it is not advisable to assume that the contract you used years ago is still the ``state of the art.” Doing so may save you a bit of money by avoiding legal advice prior to dismissal, but it can expose you to far more substantial damages, and the legal costs of defending a wrongful dismissal claim.

Stuart Rudner is an HR lawyer and a founding partner of Rudner MacDonald LLP, a Toronto-based firm specializing in Canadian employment law. He provides clients with strategic advice regarding all aspects of the employment relationship, and represents them before courts, mediators and tribunals. He is author of You’re Fired: Just Cause for Dismissal in Canada, published by Carswell. He can be reached at srudner@rudnermacdonald.com. You can also follow him on Twitter @CanadianHRLaw and join his Canadian HR Law Group on LinkedIn. 

    
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