‘I'm hopeful this will be a useful tool to convince employers to use province- or territory-specific termination provisions’
HR professionals will want to take note of a recent Nova Scotia Supreme Court decision that’s a cautionary tale for employers relying on template contracts across multiple regions of Canada.
The crux of the case was an ambiguous termination clause referencing both “termination pay” and “severance pay”— the latter being a statutory concept unique to Ontario and the federal jurisdiction, not Nova Scotia.
“The judge just seized on that and said, ‘Well, there's an ambiguity: You said severance pay, we don't have statutory severance pay here, so you must mean common law,’” says Barry Fisher.
Many companies try to have a single contract for all of Canada — or even the world, he says, but “that's a complete mess.”
“Because they have offices across Canada and they want to have one contract, they try to come up with a clause that works everywhere — and it often works nowhere.”
The Nova Scotia case clearly shows this is not the ideal way to go about drafting employment agreements and termination provisions in particular, says Maria Constantine,
“I'm hopeful that this will be a useful tool to convince employers to use province- or territory-specific termination provisions so that they don't run into issues of this nature.”
Why ‘one contract fits all’ rarely works
Typically, employers using a single template don't reference the title of any legislation — they just say, “in accordance with the applicable employment standards legislation” and then have the carve-outs for statutory severance pay “(if applicable)” or benefits continuation for the statutory minimum notice period “(if applicable),” says Constantine.
“That's not an uncommon approach at all. It's one that I discourage, because I think you're just asking for a wrongful dismissal lawsuit. If you take that approach, it's always better to refer to the specific legislation that applies to that employee.”
The risks of using cross-jurisdictional templates are significant. For example, an employer operating across multiple jurisdictions may choose to use an Ontario-style termination provision that references the obligation to pay employees statutory severance pay and to maintain an employee's benefits coverage throughout the statutory notice period, she says.
“Those are two obligations that are unique to Ontario, at least among provincially and or territorially regulated employers,” says Constantine.
“[If] an employer operating in Nova Scotia, for example, uses a termination provision that references those obligations when they don't actually exist under the employment standards legislation of that jurisdiction, then they run the risk of the termination provision being deemed ambiguous or vague and unenforceable.”
That could result in the employer having to provide the employee with a reasonable notice of termination at common law, she says, “which is generally a much longer period of notice than the statutory termination period.”
Hidden complexity of provincial differences
The legal landscape for employment standards in Canada is a patchwork, with variation around issues such as overtime thresholds and vacation entitlements, says Constantine.
But termination remains the biggest risk area, she says, because in British Columbia and Ontario, the statutory termination periods are pretty much the same, while they are slightly different in every other jurisdiction across Canada.
“An employee may have signed an employment agreement while they were living… in Nova Scotia at the time of hire, but then they moved to Ontario, and they've only got a Nova Scotia termination provision, which would entitle them to less than what they're actually owed in Ontario, for example. So that's where we tend to see some risk.”
Ontario takes a “complicated” approach to termination clauses, says Fisher, with a different just cause standard and severance pay, for example.
“We're highly litigious over it — the other provinces aren't as much,” he says.
And some cross-Canada contracts say the employee is “governed by the labour standards,” says Fisher, but that’s not a term used for Ontario.
He adds that Quebec is a whole other challenge: “In Quebec, reasonable notice is statutory, so you can't even say, ‘minimum provisions under the Labour Standards Act.’”
Remote work considerations
The rise of remote work has only heightened the risks for employers — and the confusion, according to Constantine, citing a recent client query.
“They're an Ontario-based company, they've got an employee who's working fully remote from British Columbia, and for payroll purposes, she's set up as an Ontario employee because they're headquartered in Ontario,” she says.
“But he didn't even realize that the employment standards legislation that governed that relationship was still going to be British Columbia legislation, because that's where the employee is based. So, I think a lot of employers still don't realize that that is the law that applies. It is the law of the province where the employee is working.”
There's definitely a disconnect or misconception that the law that applies is the law of the jurisdiction where the company is based, says Constantine, “which is not the case.”
Fisher agrees that what matters is where the person performs the work, not where they live.
“If I'm a virtual worker in Toronto, and my employer is in Manitoba, [and] the company cranks out a Manitoba clause, that's not applicable to me, probably, because I live in Ontario.”
Remote workers are “all over the place,” he says, so it pays for employers to have 10 clauses that apply to all jurisdictions instead of one template.
Also of note: There are a lot of border communities where people just go back and forth for work, such as Ottawa and Gatineau, Que., so “the border is meaningless,” says Fisher — but the law still applies.
Province-specific templates
Both lawyers agree that the solution is not as onerous as some employers fear.
Constantine recommends that employers prepare a province- or territory-specific template that references the full name of the employment standards legislation in that province.
“I never loved the idea of having a termination provision that references ‘the applicable employment standards legislation,’ primarily because we know how closely our courts will scrutinize termination provisions. They will find a way to deem them to be non-compliant with employment standards legislation and therefore unenforceable.”
Ideally, employers could use the same form of agreement across Canada with modifications where necessary, says Constantine.
“For example, the first time you refer to the employment standards legislation of that jurisdiction, you're going to update that to reflect the title of the legislation in whichever province or territory your template relates to, and then the termination provisions will look different.”
She notes that the termination provisions will look very similar in all provinces and territories other than Ontario; Nova Scotia also has a unique rule where an employee can't be terminated after 10 years of service without just and sufficient cause.
Fisher says that it can be a simple as an appendix to the employment agreement that lists different termination clauses for each province or territory; for example, if you’re in Ontario, paragraph 12 automatically applies; in B.C., paragraph 5.
“It’s not complicated but I rarely see anyone do it,” he says.
There are national law firms that can handle this type of situation, says Fisher: “You don't need to hire 10 separate lawyers… it shouldn't be too problematic.”
“If you have employees across Canada, then spend a few bucks and retain lawyers or get a national law firm to draft you clauses specific for each province. Big deal, you’ve got 10 contracts.”
Fixing existing contracts—easier said than done
For employers realizing their existing contracts may not comply, the path forward is not always straightforward.
“If you realize… that your termination provision is likely not going to withhold scrutiny if it were ever challenged, then you're kind of between a rock and a hard place,” says Constantine.
“You have some options. You could conceivably roll out new employment agreements across the board for employees, but there's a few challenges with that approach: number one, the employees are under no obligation to sign off on those agreements if they don't want to; and, number two, they won't be enforceable unless you're providing the employee with fresh consideration.”
Normally, Constantine recommends a small signing bonus for employees if they’re being asked to sign off on agreements that are going to restrict their rights in some way. But again, the employee could decline the offer.
And most employers don’t roll out new employment agreements every time a new court case suggest the termination provision won’t be enforceable, she says, so an alternative is to roll out a new employment agreement when the opportunity arises, such as a promotion.
“That's a… good time to then bring them on to an agreement that is up to date and that contains what we hope will be an enforceable termination provision. That's usually the easiest way to go about doing this.”
Consideration problematic in employment law
Fisher highlights that the issue of consideration can be problematic. For example, if someone wants to change a contract from 12 months’ common law notice to the employment standards minimum, is a $1,000 raise enough?
“Is that consideration? ‘You're taking something valuable away from me and giving me nothing next to nothing’ — that's one argument,” he says.
Another argument involves the duty of good faith between an employer and employee, says Fisher.
“If the goal behind this change of contract, with a minor change in compensation, is to basically deny that person his common law rights, have they breached the duty of good faith by not advising them, or by at least not saying, ‘You should see a lawyer here’?” he says.
“The classic statement is, if you give consideration, it's enforceable, but I think it's open to attack.”
Case raises questions around termination clauses
Overall, the case — Brocklehurst v. Micco Companies Limited — is a bit difficult to follow, and the focus of the case is not so much on the fact that severance pay is referred to in the termination provision, says Constantine.
“But I do think the case, nevertheless, does stand for the proposition that there is risk involved in referring to entitlements that exist in one province but not in another when you're drafting your termination provisions.”
And while there’s still the possibility the decision could be appealed, it provides valuable insights, according to Constantine.
“I don't think this case stands for the proposition that every single non-Ontario termination provision that refers to statutory severance pay, if applicable, will necessarily be unenforceable, but I think it does raise the question of whether that particular clause is vague or ambiguous.”
