Ontario court decision finds termination clauses aren’t valid if they could violate employment standards in the future
The Ontario Divisional Court has made a statement on the validity of termination provisions that follow employment standards minimums in the present but potentially violate those minimums down the line.
Claims from departing employees seeking damages for wrongful dismissal can be an expensive proposition for employers. To address this concern, employers have increasingly made use of contractual termination clauses in order to limit the amount of notice owing to employees upon dismissal. Such termination clauses allow employers to exercise a measure of control over the entitlements of a departing employee, typically limiting them to the minimum statutory notice and severance owing under provincial or federal employment standards legislation.
However, the law is clear that termination clauses cannot be used to defeat the statutory minimum entitlements owing upon termination. In other words, an employer cannot “contract out” of the requirements of the applicable employment standards legislation. Therefore, if a termination clause provides for something less than the statutory minimum entitlements, then that clause will be void and the employee free to seek additional notice at common law.
Yet in recent years, a debate has arisen as to whether termination provisions must meet the statutory minimum at all times or simply at the time of termination. In the 1998 decision of Shore v. Ladner Downs, the British Columbia Court of Appeal held that a termination clause must comply with statutory minimum standards at all times or be held void and unenforceable. That decision was subsequently followed by a number of decisions in Ontario, such as in the 2007 decision of Slepenkova v. Ivanov and the 2011 case of Wright v. Young & Rubicam Group of Cos.
More recently, however, a number of trial-level decisions, namely the Ontario cases of John A. Ford & Associates Inc. v. Keegan and Goldsmith v. Sears Canada Inc., have departed from that principle and held that a termination provision that meets the minimum statutory entitlements at the time of termination is enforceable, regardless of whether it may one day hypothetically run afoul of those statutory minimums.
Unenforceable termination clause
Given the duelling decisions at the trial court level, it has remained unclear in which direction the judicial winds would ultimately blow. It appears, however, that this question has now been resolved. In Garreton v. Complete Innovations Inc., the Divisional Court of Ontario dealt with a termination provision that provided for an amount of notice that met the minimum statutory entitlement at the time of termination, but would have been void in the event that the employee had worked five or more years due to an amount of notice that would not have met minimum standards at that point in time. The court disagreed with the reasoning in Keegan, and held that the termination clause was unenforceable:
“In my view, the employment contract must be considered at the time it is executed. If the termination provision is not onside with notice provisions and severance provisions (if applicable) of the act at the outset, then it is void and unenforceable. Potential violation in the future is sufficient.”
The Divisional Court has therefore provided a clear statement of the law: Termination clauses must meet the statutory minimum standards, at all times and under all circumstances, or they be held void ab initio. As stated by the court in Wright, and cited approvingly in Garreton: “It is not that difficult to draft a clause that complies completely with the act, no matter the circumstance.”
Review existing employment contracts
The Garreton decision will clearly be well received by employees wishing to bring claims for additional notice upon dismissal without cause. For employers, on the other hand, it provides renewed incentive to review and revise existing employment contracts to make sure that they are compliant with the terms of the applicable employment standards legislation — at all times and under all circumstances.
For more information see:
• Shore v. Ladner Downs, 1998 CarswellBC 973 (B.C. C.A.).
• Slepenkova v. Ivanov, 2007 CarswellOnt 9912 (Ont. S.C.J.).
• Wright v. Young & Rubicam Group of Cos., 2011 CarswellOnt 10754 (Ont. S.C.J.).
• John A. Ford & Associates Inc. v. Keegan, 2015 CarswellOnt 4418 (Ont. S.C.J.).
• Garreton v. Complete Innovations Inc., 2016 CarswellOnt 2500 (Ont. Div. Ct.).