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Why you should read the fine print

Not reading the termination clause in an employment contract can create headaches down the road

By Stuart Rudner

As I constantly advise individuals, they should review any offer of employment in detail before signing. Organizations in Canada are becoming more aggressive in their use of contracts, and termination clauses in particular. Many individuals unknowingly give up significant rights to notice of dismissal or termination pay when they blindly sign an offer of employment after only briefly confirming what they perceive to be key items, such as salary and vacation entitlement — ignoring the rest of the “legal mumbo-jumbo.”

For years, I have encouraged employers to use employment contracts for all employees, and in particular to include termination provisions. I recommend this in order to avoid the uncertainty that is involved when there is no termination clause and the parties must revert to common law and attempt to determine what "reasonable notice" might be in that particular case. (For more detail, please see my recent blog post, Avoid future costs with clearly written employment agreements.)

Termination clauses do not have to be oppressive or designed to take advantage of the employee. Rather, they can provide certainty to both parties. However, any employee that receives an offer of employment should consult with a lawyer that specializes in employment law in order to ensure that they understand all of the terms of the contract and the consequences thereof.

With respect to termination clauses, I have seen many intelligent individuals sign employment agreements that provide for only the statutory minimum amount of notice in the event of dismissal. In many cases, those individuals were simply so happy to have a job that they did not bother reading the agreement. In others, they skimmed the agreement but did not understand it — or alternatively, they vaguely understood the implications, but assumed that "it would never happen to them."

If an individual signs off on a harsh termination provision after having a reasonable opportunity to consider the offer and obtain legal advice, they have only themselves to blame. In some cases, they will have no choice if they want to accept the positionbut at the very least, the individual should obtain proper legal advice in order to understand what they are agreeing to. There is no excuse for choosing not to read to the contract that is presented to you, and a recent court decision provides an interesting example of how that can come back to haunt you.

In Miller v. A.B.M. Canada Inc., the Ontario Superior Court had to consider a situation in which the plaintiff employee had signed an employment contract with a termination clause purporting to limit his entitlement to the statutory minimum amounts. Specifically, the contract provided as follows:

Regular employees may be terminated at any time without cause upon being given the minimum period of notice prescribed by applicable legislation, or by being paid salary in lieu of such notice or as may otherwise be required by applicable legislation.

The contract also contained a confirmation above the signature line, which stated as follows:

I have been given a copy of this contract of employment as well as the bonus plan and I have read and understood their respective terms. I hereby accept the terms and conditions of employment outlined above.

Ultimately, the court found that the clause was not enforceable as it fell below the minimum amounts required by employment standards legislation. Specifically, while the contract provided for the period of notice that was required by legislation, it did not address all forms of remuneration that would be required since it only referred to "salary in lieu of such notice". Following other cases such as Stevens v. Sifton Properties Ltd. (see Vague contract wording no benefit to employers), the court concluded that the clause was unenforceable. As a result, common law principles would apply.

What is particularly interesting is what the court did after determining that common-law principles would be used in order to assess the reasonable period of notice. The court took into account the usual factors, such as the employee’s length of service, age, and position/character of employment. However, the court went on to consider the fact that the plaintiff admitted that he did not read the termination provision in the contract. The court wrote as follows:

I take into account Mr. Miller's evidence that he did not read the termination provisions in the contract.

Had he done so, he could have voiced objection to whatever provisions he found unsatisfactory, either as to length of the notice period, or the fact that it did not call for payment of benefits during that period. The contract terms make it clear what the employer intended. Mr. Miller in his curriculum vitae indicated that he had experience in and had been responsible for human relations at Dieter's. Part of his job description with the defendant made him responsible for monitoring all legislation relevant to the organization, and specifically listed employment standards. By signing the contract, Mr. Miller signified to the employer that he had read, and understood, and accepted the terms of the contract. Had he in fact read what he acknowledged having read, the parties could have either negotiated their differences, or parted ways and avoided a period of employment that has been unhappy and no doubt costly for both. In the circumstances of this case, the employee cannot escape bearing some responsibility for the fact that both parties entered into a contract which fell below ESA standards.

While it is not illogical to take into account the individual's background and level of sophistication when considering whether they understood a contractual term, what is surprising is that this was done in the context of a contractual term that was found to be in violation of the Employment Standards Act, 2000 and therefore unenforceable. Once it was found to be unenforceable, it should be irrelevant. Nevertheless, the court relied upon Mr. Miller's failure to read the clause as a basis upon which to award a notice period that was shorter than it would otherwise have been.

While the approach of the court is questionable in this case, the bottom line is that individuals must take the time to review any offer of employment and obtain advice from a lawyer that specializes in employment law. If they choose not to do so, they risk a very nasty surprise in the future. Particularly where an individual is sophisticated and has some knowledge of human resources or employment law, they will often be held to a bargain — even if it may not be a smart one. As this recent case demonstrates, even if the clause itself is unenforceable, failure to read it may be used against you. Ignorance is not necessarily bliss.


Stuart Rudner

Stuart Rudner, Employment Lawyer and MediatorStuart Rudner is the founder of Rudner Law (RudnerLaw.ca), a firm specializing in Employment Law and Mediation. He can be reached at stuart@rudnerlaw.ca, (416) 864-8500 or (905) 209-6999, and you can follow on Twitter @RudnerLaw.
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