Termination Provisions for Federally Regulated Employers

As we discussed in our previous blog series, Termination Provisions - A Legal Update and Termination Provisions - A Legal Update 2, having an enforceable termination provision is an important tool for employers to limit liability on termination. However, the Ontario Courts have recently taken a stringent approach to interpreting termination provisions, emphasizing that termination provisions must comply with minimum employment standards legislation.

This trend continues with the recent decision in Sager v. TFI International Inc., 2020 ONSC 6608. Interestingly, in this case the Ontario Superior Court of Justice considered whether a termination provision complied with the minimum requirements set out in the federal employment standards legislation, the Canada Labour Code ("CLC"). This is one of the first times where an Ontario court has considered the enforceability of a termination provision governed by the CLC.

The Facts:

In Sager v. TFI International Inc., the employment agreement between the parties included a termination provision that stated the employer could terminate the employee without cause by providing him with the greater of three months' base salary or one-month's base salary per year of completed service to a maximum of 12 months. The termination provision stipulated that the "payment shall be inclusive of any and all requirements" that would be owing to the employee under the CLC.

The employee was terminated without cause after approximately 3 years. In accordance with the employment agreement, the employer provided him with 3 months' base salary.

The employee brought a claim for wrongful dismissal. The employee alleged the termination provision was unenforceable for violating the CLC. Specifically, he argued that the termination provision was void as it only provided for pay in lieu of base salary and did not require the employer to maintain all of the terms of his employment during the statutory notice period, such as his benefits, bonus and car allowance. He claimed this violated s. 231(a) of the CLC which outlines that employers cannot "reduce the wages or alter any other term or conditions of employment" during the statutory notice period.

The employer argued that the 3 months' base salary the employee had received pursuant to the termination provision was greater than the employee's entitlements under the CLC, and thus the termination provision was enforceable.

The Outcome:

The Court sided with the employee - the termination provision was unenforceable for violating the CLC.

The Court acknowledged that the termination provision did provide the employee with more termination pay than the minimum under the CLC. However, as the termination provision purported to limit the employer's obligation to payment calculated only on base salary, without regard to the employee's entitlements to benefits, bonus or car allowance, it was inconsistent with the s. 231(a) CLC requirement that employers maintain all wages and terms of employment during the statutory notice period.

As a result, the employee was entitled to reasonable notice of termination based on the more generous common law principles. He was awarded 9 months' pay in lieu of notice, including amounts for his base salary, benefits, bonus, car allowance, and RRSP contributions.

Key Takeaways:

This decision suggests that the Ontario Courts will closely scrutinize all termination provisions, regardless of whether they are governed by the provincial or federal employment standards legislation. In every case, employers must ensure their termination provisions comply with the applicable minimum standards legislation.

In particular, federal employers are encouraged to carefully review their employment agreements to ensure they cover their obligations under the CLC. Any non-compliant language could result in the termination provisions being unenforceable. As always, employers should seek legal advice when reviewing employment agreements.

Lee Workplace Law has extensive experience in employment matters and can help.