Be mindful of the future
Future problems can haunt termination provisions in the present
Mar 27, 2012
By Jeffrey R. Smith
“The fact that you prevented it from happening doesn’t change the fact that it was going to happen.” — Tom Cruise, Minority Report
Sometimes intentions, not necessarily actions, are 100 per cent of the law. At least, that’s the case when it comes to employers following employment standards legislation. All jurisdictions in Canada have specific minimum notice periods employers must give employees before terminating them — or pay them their equivalent earnings for those notice periods — that depend on the length of the employee’s service. Often, severance pay is also required, which is also tied to the employee’s tenure.
Employers can require employees to sign employment contracts that outline specific notice periods upon termination. This can reduce employer costs, as it can replace the sometimes-lengthy common-law notice obligations with a less and known quantity. However, they can never contract out of employment standards obligations and any contractual termination provisions must, at a minimum, match legislated minimum notice requirements.
But a contractual termination provision might not protect the employer from added notice obligations, even if employment standards minimums are met at the time of termination. An Ontario company discovered this when it fired an executive a couple of years ago. According to the employment agreement the executive signed, he was entitled to receive 13 weeks’ pay for his five years of service. This was greater than Ontario’s employment standards minimums, which stipulated five weeks’ notice plus five weeks’ severance pay for a five-year employee.
However, the termination provision in the employment contract was deemed void and unenforceable by the Ontario Superior Court of Justice. Even though the notice provided for was fine in the executive’s current circumstances, a look at the entire provision showed not enough notice was provided for if the executive had remained employed for a longer time. Had the executive been terminated after 8.5, 9.5, 10.5 or 18.5 years, the payment stipulated would not have met the legislative minimums for notice and severance pay combined for those periods of service.
Even though those circumstances never came to be, the court found any provision that could potentially violate employment standards at any point of its existence was not enforceable. As a result, the company had to pay common-law notice of 12 months.
Should a termination provision be thrown out because of a possible future employment standards issue, or should it be allowed to stand as long as it continues to meet legislative obligations? Should it only have been considered void if the employee’s tenure reached the length where there would have been a problem?
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 email@example.com. For more information, visit www.employmentlawtoday.com.
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Jeffrey R. Smith is the editor of Canadian Employment Law Today, a publication that looks at workplace law from a business perspective.