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Clearly worded termination provisions

Ontario case highlights challenges of employment contracts

By Stuart Rudner

Much has been written in recent months about the need for clearly worded termination provisions in an employment contract. Provisions that are vague or unclear, that fail to meet the minimum requirements of applicable employment standards legislation or are part of an agreement that was signed after the commencement of employment, will typically not be sufficient (for examples, see Drafting an effective termination clause, Employment agreements avoid awkward hiring situations). 

Sometimes, I am faced with situations where an employee did not sign an employment agreement that contained a clear termination provision, but there is a policy in place which purports to limit employees’ entitlement to notice of dismissal. The question that we must address is whether that policy will govern. 

As discussed in previous blog posts, the case law is clear that the common law presumption of reasonable notice in the event of dismissal without cause can be displaced by contract. However, the courts have also held that the contractual provisions must be clear and unambiguous in order to displace the common law presumption. In situations where the contract is silent, the common law will govern. 

In situations where there is a policy which purports to limit employees’ entitlement to notice of dismissal, it can be difficult for the employer to successfully argue that the policy should be enforced. Recently, this issue was addressed by Justice Dow of the Superior Court of Ontario in Asgari v. 975866 Ontario Ltd.

In that case, there was a three-page offer letter that explicitly stated the employee had been given a copy of the employee handbook. Contained within the handbook was a clause that provided the employer had the right to terminate the employment relationship 
at any time for just cause without notice or pay in lieu of notice. In the absence of just cause, the company may terminate your employment upon provision of the minimum statutory requirements for notice, termination pay or (if applicable) severance pay required by applicable employment standards legislation. 

The court also took note of a provision on the following page, where it was stated that “the employee handbook is not a contract of employment."

The plaintiff took the position this policy was not sufficient to displace his entitlement to reasonable notice at common law. In particular, he pointed out that the statement that the employee handbook is not a contract was inconsistent with the defendant's position the termination policy formed part of the contract of employment.

The court agreed, finding it to be “confusing if not contradictory about whether the plaintiff waived his right to seek common law damages beyond that available pursuant to the Employment Standards Act, 2000."

As a result, the court found the individual was entitled to reasonable notice pursuant to common law, which took into account all of the usual factors, in addition to the fact the plaintiff had been recruited to leave prior employment by the defendant. 

I continue to encounter employers that are reluctant to use detailed employment agreements that contain termination provisions. In some cases, they suggest that any termination provisions be included in a policy manual. My advice is that this will not be as effective as having a clearly worded clause in an enforceable contract of employment.

The case referenced above does suggest that, in the right circumstances, a termination policy will be enforced. However, it also exposes some of the challenges that will exist, and that can be avoided through the use of termination clauses in employment contracts.

I recommend employers use employment contracts for all employees, and that these contain clauses that set out the amount of notice of dismissal, or pay in lieu thereof, that will be provided in the event of dismissal without cause. These clauses do not have to be unnecessarily harsh or oppressive; rather, they can set out a reasonable amount of notice, but avoid all of the uncertainty that goes along with the common law requirement.

So long as the clause is drafted clearly and unambiguously, and in accordance with applicable legislation, and the contract is entered into properly, then it will be enforceable. This can save employers and employees significant time, money and uncertainty.

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Stuart Rudner

Stuart Rudner, Employment Lawyer and MediatorStuart Rudner is the founder of Rudner Law (RudnerLaw.ca), a firm specializing in Employment Law and Mediation. He can be reached at stuart@rudnerlaw.ca, (416) 864-8500 or (905) 209-6999, and you can follow on Twitter @RudnerLaw.
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