Recent case highlights importance of enforceable termination clauses
While Canadian courts will enforce termination clauses that limit an employee's entitlement to notice of dismissal, they often find creative ways to help an employee avoid the consequences of those contractual terms where possible.
In April 2013, I wrote about the Ontario Superior Court of Justice's decision in the Stevens v. Sifton Properties Ltd. In that case, the employee had agreed to be bound by a contract that contained a termination clause effectively limiting notice of dismissal to the minimum amount required by the Employment Standards Act, 2000.
The clause, as is typical, allowed for the provision of notice of dismissal or pay in lieu thereof. However, it did not explicitly confirm that if pay in lieu was provided, the individual's employment-related benefits would continue as well.
Since the Employment Standards Act, 2000 requires that benefits continue during the notice period, the termination clause was found to be in breach of the act and, therefore, unenforceable.
This decision surprised many people, particularly in light of the evidence that the employer had continued benefits during the notice period, and had never done anything to suggest it planned to do otherwise. Nevertheless, the court held that it is the wording of the contract, and not the actions of the parties, that is at issue, and that a strict wording of the contract in that case led to the conclusion it did not provide the minimum level of benefits required by the Employment Standards Act, 2000.
In June of this year, the Ontario Superior Court of Justice had to address a similar issue in the case of Miller v. A.B.M. Canada Inc. In that case, the plaintiff applied for employment and there were negotiations over "what it would take" to convince him to join the company. A contract was entered into which included the following provision:
“Regular employees may be terminated at any time without cause upon being given the minimum period of notice prescribed by applicable legislation, or by being paid salary in lieu of such notice or as may otherwise be required by applicable legislation.”
Interestingly the court explicitly referenced the Stevens v. Sifton case and, in reaching its conclusion, noted as follows:
“In the case at bar, a reading of the termination clause in my opinion leads to the result that the six per cent pension contribution and the car allowance are not included in the amounts to be paid during the period of notice, contrary to the ESA. In the letter of termination here, the employer indicates initially that the defendant's position is that base salary and car allowance are to be paid, without any reference to the six per cent pension contribution. On page two, as part of the "sign of good faith" enhanced offer, if accepted, to pay four weeks, again it is for base salary, plus car allowance and no mention of pension contribution. In evidence, Mr. Koehler testified that he was of the view that both the car allowance and the pension contribution were payable. It seems from the prevailing case law that it is the wording of the contract in respect of termination that governs, rather than the actions of the parties."
The court concluded that the clause was in breach of the Employment Standards Act, 2000, writing as follows:
“…in my opinion, the termination clause in the within contract fails to comply with the provisions of the ESA and for that reason is null and void and incapable of refuting the common law presumption established by the majority in Machtinger that the employee is entitled to a reasonable period of notice as calculated under common law principles. In saying this, I am satisfied that the termination provision is adequate in terms of how it purported to stipulate the length of the notice period. Where I think it breaches the statute is that it does not provide for the payment of benefits during the period of notice, or in the alternative, is ambiguous in this respect, hence attracting resolution of that ambiguity against the defendant pursuant to the principle of contra proferentem.”
As a result, this 39-year-old, 17-month middle-management employee was awarded three months of pay in lieu of notice.
For employers, this is yet another reminder that it is crucial to have employment contracts reviewed by a lawyer who specializes in employment law and can help to minimize the risk that the contract, and the termination clauses in particular, will not be enforceable. Otherwise, as the old saying goes, they may not be worth the paper that they are printed on.
For employees, while it is sometimes possible to escape the consequences of a termination clause, this is not something that should be assumed. More and more, employers are using termination clauses, many of them aggressively. Before signing any offer of employment, it is critical that you obtain legal advice in order to understand the terms and conditions.
It is surprising how often I am consulted by individuals at the time of dismissal who are shocked to learn what they agreed to when they were hired.