'If you're going to go all-in on an employment standards minimum clause, do it', says lawyer
A B.C. court has upheld an employment agreement despite a dismissed worker’s complaint that the termination clause was ambiguous and could have different interpretations.
The court’s interpretation of how a single word applied to termination entitlement was enough to determine it was valid – and a reminder that employment agreements should be drafted carefully, says Richard Johnson, co-founder and partner at Ascent Employment Law in Vancouver.
“The courts like to uphold contracts where the intentions of the parties are set out,” says Johnson. “Specifically, where there's a written contract, I think the inclination is to try to honour that, as long as there's no illegality.”
Contract in advance
In late 2020, the worker, who had many years of experience in sales, worked for several years with the Greater Vancouver Board of Trade. A colleague at the board left in mid-2020 to join Maximizer Services, a developer and seller of customer relationship management (CRM) software in Vancouver. A few months later, the colleague encouraged her to join him at Maximizer.
The worker agreed to join Maximizer in March 2021 as an account manager selling CRM software systems. About three weeks before she started work, Maximizer provided a written employment agreement.
Providing the worker with the contract some time before she started work helped with its enforceability, says Johnson.
“There’s a good three weeks or so that [the worker] presumably had this contract, or at least some period of time where she could turn her mind to it and then start work, and that's important to the courts,” he says. “There's this whole line of case law that says if you provide a contract on the day of starting [employment] or after somebody's already commenced duties, you're risking invalidity – you really ought to provide that in advance so they can contemplate it and then start under those terms.”
The employment agreement included a termination clause that stated Maximizer could terminate her employment without notice or severance pay at any time with cause or during a probationary period. It also provided for termination with cause if Maximizer provided the greater of:
“a) the notice (or payment in lieu) prescribed by the Employment Standards Act of BC [ESA] as amended or replaced from time to time, and
b) two weeks’ written notice of termination (or payment in lieu), plus an additional one week for every completed year of service to a maximum of four months (‘severance’).”
The agreement stipulated that severance would be calculated using base salary only and would not include incentives, commissions, bonuses directly tied to future performance, or benefits.
A termination clause breached the ESA by setting a different standard for conduct that would remove the entitlement to termination pay than the legislation, an Ontario court ruled.
Termination without cause
On Nov. 16, 2021, Maximizer terminated the worker’s employment without cause and paid her two weeks’ base salary as pay in lieu of notice.
The worker filed a claim for wrongful dismissal damages, arguing that the termination clause was unenforceable because it was ambiguous, and it offered less severance pay than the statutory minimum. She claimed six months’ pay in lieu of notice along with aggravated damages for the “unduly harsh and insensitive” manner of her dismissal.
The worker argued that the termination clause could disentitle her to the statutory minimum in subparagraph a) since it defined “severance” as base salary only – which breached the ESA because the definition of “wages” included benefits, commissions, and anything else that was a regular part of an employee’s compensation – and the mention of “written notice” in section b) could also disentitle her to commissions and bonuses if she worked until her termination date instead of receiving payment in lieu.
She also said that the termination clause caused confusion over what she would receive due to the differing references to “notice” in subparagraph a) and “written notice” in b), the use of “and” instead of “or” between the subparagraphs, and complex calculations needed to determine entitlement.
A termination clause was clear in its intention to disentitle an employee from common law notice with wording that stated as much, a Nova Scotia court said.
Termination clause confusing: worker
The confusion and uncertainties allowed for multiple interpretations of the termination clause, some of which contravened the ESA, said the worker.
The court found that the termination clause was clear in that “severance” defined the notice entitlement under subparagraph b) only as it was a part of that subparagraph. In addition, the use of the word “and” instead of “or” between the two options did not change the ordinary meaning of “the greater of,” leaving it clear that the worker was entitled to the better of those two options, said the court.
The validity of the employment agreement boiled down to this particular court’s finding that the reference to “severance” did not apply to the first subparagraph indicating payment of the statutory minimum wages, says Johnson.
“Putting in that ‘You will get employment standards minimums if we terminate your employment without cause, and that will be only based on base salary’ – we see that often. That renders it invalid because employees are entitled to much more than just their base salary under employment standards legislation,” he says.
“I think that's a really important thing to highlight – but for this technical saving grace from the court, those types of clauses that say you only get a salary for your two weeks or three weeks or whatever it is, that is risky and a court will likely find that the employee is entitled to common law notice.”
“If you put it in front of another judge, I could see them finding that it was too technical of an interpretation to say that the word ‘severance’ only applies to that subclause b),” Johnson adds. “I think that this was 50/50 and, generally, in these types of cases, they settle because there's risk – but in this case, it ended up before the court and it's a good example of where things are going to turn on their specific facts.”
A Ontario employment agreement had an enforceable termination clause but was done in by a conflict-of-interest clause and a confidential information clause that contravened the ESA.
Employer did not seek to contravene ESA
The court also found that the worker was, at a minimum, entitled to notice or payment in lieu of notice as set out in the ESA, so Maximizer did not seek to contravene the statutory notice requirements.
The court noted that Maximizer paid the worker the equivalent of two weeks’ base salary upon termination. Her ESA entitlement for eight months’ service would be one week’s regular wages, so the company actually paid her more than the statutory minimum, said the court.
The court determined that the termination clause was enforceable and the worker received termination pay in lieu of notice in accordance with its terms and the ESA. As a result, there was no wrongful dismissal and there could be no aggravated damages, said the court in dismissing the worker’s claim.
Despite the outcome of this case, Johnson says that saving clauses such as the one here that provide options involving “the greater of” something are risky, as was shown in the Ontario decision of Waksdale v. Swegon North America Inc., 2020 ONCA 391, that has been considered in BC and other jurisdictions.
“If you have a saving clause where you say the employee gets the greater of two weeks or whatever the employment standards legislation says, that's actually not going to fly in a lot of cases these days,” says Johnson. “I would caution against employers using that type of failsafe – if you're going to go all-in on an employment standards minimum clause, do it. If you're going to go above and beyond, then do it, but I wouldn't do this ‘greater of’ language, because it's risky.”
Clarity is key for drafting and enforcing termination clauses in employment contracts, according to employment lawyers.
Clarity is key
A key thing for employers to remember when drafting employment contracts is the importance of clarity, says Johnson.
“You can always put a clause in there that says employment standards minimums will follow on dismissal, and then pay more on the way out, but I would not, to [avoid] too much confusion or cumbersome mechanisms in your severance clause,” he says. “Go with a path and stick to it instead of this ‘greater language’ or trying to limit entitlement to base salary.”
“The goal is transparency and having an even playing field that everybody agrees to beforehand, so you don't end up in this spot,” he adds. “And then have clear, defined terms – clarity is absolutely essential.”
