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An important little dotted line

Termination provisions can help reduce costs for employers, but aren’t much use without the employee’s signature

By Jeffrey R. Smith

How important is a signature? It can be crucial for employers, and its absence could be expensive.

Termination provisions can be helpful for employers to have in employment contracts. They can bring certainty to an area that would otherwise be filled with uncertainty — such as how much notice or pay in lieu of notice an employee is entitled to if the employer terminates her employment. There is a statutory minimum notice period outlined in employment standards legislation in every Canadian jurisdiction, but those minimums generally don’t mean much in no-cause terminations.

If an employee is fired without just cause and given the statutory minimum notice or equivalent, a legal challenge would likely result in much more notice, especially for a long-term employee. Common law notice can be a fair bit longer than employment standards minimums.

But employers can limit the uncertain and increased expense of common law notice by including termination provisions in employment contracts that limit notice entitlement. Employers can’t contract for less than employment standards minimums, but they can equal them. An employment contract that limits reasonable notice to the statutory minimum in the event an employee is terminated without cause can reduce a lot of headaches.

A standard employment contract with the same termination provision for all employees can be a wise way to go, but simple awareness of the provision by employees won’t cut it. There was a recent termination case involving restaurant chain Shoeless Joe’s, which had a standard contract for senior employees that limited notice entitlement to the statutory minimum if they were let go without cause. When it hired a vice-president for its Toronto headquarters, it went through the standard process of an offer and acceptance. However, it forgot to have him sign the standard contract. So, when he was let go five months later, the one week’s pay it gave him wasn’t enough.

Had the employee actually signed the contract, the one week’s pay would have likely been fine, since that’s the amount of notice outlined for employees with less than one year of service in Ontario’s employment standards legislation. However, even though he was probably aware of the company’s standard termination provisions, he wasn’t bound by it and was subject to common law notice, which a court judged to be two-and-a-half months — pretty significant for an employee with less than six months’ service. But he had an important and high-paying job, factors that come into play when a court calculates common law notice.

So the exec probably knew of the company’s regular termination provisions and was aware he hadn’t actually signed a contract. Should it have been his responsibility to say something? Could it be considered bad faith that he didn’t bring it to the company’s attention? As in most employment law cases, the benefit of the doubt goes to the employee. In the end, the onus was on the employer to get that signature. In these circumstances, that signature was worth about nine weeks of a vice-president’s salary.

Jeffrey R. Smith is the editor of Canadian Employment Law Today, a publication that looks at workplace law from a business perspective. He can be reached at jeffrey.r.smith@thomsonreuters.com. For more information, visit www.employmentlawtoday.com.

Jeffrey R. Smith

Jeffrey R. Smith is the editor of Canadian Employment Law Today, a publication that looks at workplace law from a business perspective.
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