Ontario court decision highlights importance of wording in termination provisions
Words can hurt — at least, they can hurt employers if they’re not properly put together in termination provisions for employees.
Firing employees is never a pleasant task for employers and the HR people who have to carry out that task. It can also be costly if employers don’t comply with the protections that employment standards legislation and the common law provide to dismissed workers.
It can be a little crazy keeping track of the legal obligations when dismissing employees, which is why termination clauses in employment contracts can be of help.
Termination clauses can allow employers and employees to contract out of common law reasonable notice obligations for “without cause” terminations. Common law reasonable notice can be quite a bit more than legislative minimums and depends on several factors, so it can also be uncertain. A termination clause can remove that uncertainty for the employer and allow it to factor it into the cost of letting an employee go.
However, there’s a pretty high legal standard for termination clauses to be valid. Wording is extremely important — the Canadian employment law landscape is littered with court decisions invalidating termination clauses that employers had thought were protecting them from liability for common law notice after terminating employees.
Often, a termination clause is ruled unenforceable due to its wording — it can be too vague as to create the possibility of denying an employee of their legal entitlements, or it creates circumstances that do same, such as cutting off an employee’s benefits before the end of the notice period without compensation.
It’s even been found that an employment contract that doesn’t breach employment standards at the time of termination is unenforceable because it would have breached them in the future. Also, if the wording is too vague and doesn’t expressly remove the common law notice entitlement, it won’t actually limit notice entitlement.
Ontario case addresses issue
One issue that has been bandied about in employment law circles is what to do if one part of a termination clause breaches employment standards but other parts don’t, particularly if the part that breaches doesn’t apply to the particular termination. This issue was addressed recently by the Ontario Court of Appeal in a case where an employee was terminated without cause.
The employee in the case had an employment agreement that contained two termination clauses — one providing for notice in the event of termination without cause and one for termination with cause. The employee was terminated without cause, so his termination was subject to the former, which fell in line with Ontario legislative minimums. The contract also contained a clause stating that if any provision or term was found to be in violation of legislation, the rest would still be valid.
However, the termination-for-cause provision was not in compliance with legislation and the employer acknowledged as much. The employee argued that because of this, the entire termination part of the contract, if not the entire contract, was unenforceable and he should receive common law notice of termination.
The Ontario Superior Court of Justice upheld the termination-without-cause provision, finding it was a standalone clause that wasn’t affected by the validity of the other one. Since the clause limiting notice for dismissal without cause was legally complaint it was enforceable, said the court.
The Ontario Court of Appeal disagreed, noting that employment standards legislation is meant to protect employees, and employers should be encouraged to draft employment contracts that comply with it from the start. As a result, there should be consequences if an employment contract and its termination provisions aren’t lawful at the time they are drawn up, said the court: Waksdale v. Swegon North America Inc., 2020 ONCA 391 (Ont. C.A.).
“An employment agreement must be interpreted as a whole and not on a piecemeal basis,” said the Court of Appeal. “The court is obliged to determine the enforceability of the termination provisions as at the time the agreement was executed; non-reliance on the illegal provision is irrelevant.”
In the aftermath of this decision, employers — at least those in Ontario, if not elsewhere — will have to take particular care in drafting the wording of their employment agreements and termination provisions.
Even if the clause under which an employee is being terminated is legally compliant, if any other aspect of the termination provision is not then the whole thing could be scrapped and the employer may be on the hook for common law reasonable notice.
Sticks and stones may break bones, but the wrong words can break employment contracts.