A loss for words
Termination provisions are only as good as the words used in them
Sep 27, 2016
By Jeffrey R. Smith
It’s always good to get it in writing. If you want to make sure of something, have it written down and, if it involves negotiating something, get the other party’s signature down too.
Employers are frequently advised of this philosophy, especially when it comes to employment contracts with new hires — or new contracts for existing employees, for that matter. Having the employer’s policies, the standards and expectations of the employee’s job, and the circumstances in the event of the employee’s dismissal all spelled out in a written contract is advisable for all employees and can help avoid messy legal situations. It can also ensure the employee is familiar with all of these things and knows the deal once she starts work.
When it comes to the terms of dismissal, employees can help themselves out by including termination provisions in employment contracts. They make the consequences of dismissing an employee without cause a known quantity, instead of a risky and potentially costly proposition.
In normal circumstances without anything specifying the contrary, employees who are dismissed without cause are owed common law reasonable notice of the termination or pay in lieu of. The amount of this notice is established in the common law history of previous judgments by courts and tribunals and is usually determined by the Bardal factors — things like the employee’s age, length of service, the importance of her position, and the likelihood of finding similar work.
It’s often believed that there is a “rule of thumb” that common law notice is worth roughly one month for every year of service. This rule of thumb has been shot down in recent years by courts, but it’s not a bad place to start when considering how much reasonable notice to which an employee is entitled. However, it can change, depending on the various factors, though there is usually a maximum around 24 months for long-term employees.
Employers can circumvent employee entitlement to common law notice with termination provisions limited notice or pay in lieu thereof for without-cause dismissal, with termination clauses limiting notice to the minimums established in employment standards legislation, or some other amount — as long as the employee receives at least those minimums. But they had better make sure that’s exactly what the termination provision says.
A Nova Scotia employer recently found that a termination provision isn’t very good if the language doesn’t actually limit the notice entitlement. It had an employee sign an employment contract with a provision that stated “if it becomes necessary for us to terminate your employment for any reason other than cause, your entitlement to advance working notice or pay in lieu of such notice, will be in accordance with the provincial employment standards legislation.”
The employee was fine with the contract and signed it, and everybody was happy. At least until the employer terminated the employee two years later and provided the employee with two weeks’ pay in lieu of notice and a two-week period of benefits continuation. The Nova Scotia Employment Standards Code stated that the minimum notice entitlement was two weeks for employees with service of “two years or more but less than five years.”
The dismissed employee successfully sued for common law notice and a court awarded him pay and benefits equal to six months of employment. The court found that the termination clause in the employment contract only said the employee’s notice entitlement would be “in accordance” with legislation, but not limited to it. There was no wording that ruled out common law notice and indicating the employee should only receive the minimums, and the court couldn’t extrapolate the intentions of the parties at the time of the contract signing without clear language: Bellini v. Ausenco Engineering Alberta Inc., 2016 CarswellNS 735 (N.S. S.C.).
Oops. The employer may have wanted to limit the employee’s notice entitlement to employment standards minimums and drawing up the termination provision was a good start, but unfortunately for it, the provision didn’t quite explain its intention. Instead, it was on the hook for paying the dismissed employee six months’s pay and benefits instead of two weeks.
It’s important to “get it in writing.” But it’s just as important to make sure that writing actually says what you want it to say.
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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.