Termination Provisions - A Legal Update

The employment standards legislation in each jurisdiction across Canada provides the minimum benchmark when an employee is terminated from employment without cause (ie., the employee is not fired for cause). In Ontario, that legislation is the Employment Standards Act (the "ESA").

Any termination clause in an employment contract that conflicts with these minimum standards will be effectively be unlawful and invalid. If that happens, the employee's termination entitlements default to the "common law" rules.

These common law rules typically provide far more generous entitlements to employees, above and beyond the requirements of the ESA. Unlike the ESA, however, an employer can lawfully circumvent the more generous common law entitlements by incorporating a termination clause in the employment contract - as long as the clause is valid and at a minimum satisfies the ESA.

As a result, it is important always to follow closely the latest flavor of the day in the courts. This will help employers to draft better termination clauses, and by the same token, help employees keep an eye on what it is they are agreeing to.

Below, see a review and summary of some of the latest decisions in Ontario on this topic. In each of these cases, the issue is whether the termination clause in the employment contract is enforceable.

Amberer v. IBM Canada Ltd.:

In June 2018, the Court of Appeal upheld the termination clause in the case of Amberer v. IBM Canada Ltd., 2018 ONCA 571. The clause in question provided for specific payments to be made to employees instead of providing them with advance notice of their termination. It also expressly stated that if provincial employment standard legislation (in this case, the ESA) provided the employee with better entitlements, than they would provide those entitlements instead.

The employee argued that the specific payment language does not meet the minimum benchmark required by the ESA. The employer argued that even so, the "failsafe" language has the ability to "save" the termination provision and allow it to be lawful and enforceable.

The Court agreed with the employer. Thus, the employer could rely on the termination clause.

The end result? The employee only got the minimum ESA entitlements, rather than the more generous common law ones.

Nemeth v Hatch Ltd.:

In January 2018, the Court of Appeal again upheld the termination clause in the case of Nemeth v. Hatch Ltd., 2018 ONCA 7 ("Nameth"). There, the termination clause stated, "the notice period shall amount to one week per year of service with a minimum of four weeks or the notice required by the applicable labour legislation."

The employee argued (among other arguments) that this clause was deficient and unclear as to whether the ESA was to be displaced by the more generous common law entitlements.

The Court held that an employer does not have to use a specific phrase or expressly say "the common law does not apply". It just must be clear from the termination clause that the employer is intending to prevent the common law rules from applying. In this case, the Court read that clause to mean that was clearly the intent.

The employee also argued that, because the clause failed to expressly mention "severance pay" (which is one of the minimum entitlements one could get under the ESA), the clause has the "potential" to breach the ESA, and thus, should be unenforceable.

Note, this line of argument had been used by employees in other past cases, albeit in somewhat different contexts.

Interestingly, the Court of Appeal also rejected this argument this time round. In doing so, the Court said that silence on an ESA item (in this case, severance pay) is not equal to an intent to not pay severance pay. The Court even went a step further to say that silence on the topic in this context clearly means the employer intended to comply with minimum standards.

The end result is that the employee got only the minimum ESA entitlements.

Farid Salam v. Jardine Lloyd Thompson Canada Inc.

Recently, our firm defended the employer in the case of Salam v JLT ("Salam"), and the decision was released on March 26, 2019. The Court there followed the legal trend as outlined above and upheld the termination clause in question.

Here, the termination clause provided the employee was "entitled to receive only the minimum amount of notice or pay in lieu of notice, or any combination thereof as set out in the provincial or territorial employment legislation". The clause went on to state that, "the Employee agrees that this provision is complete satisfaction of all contractual, statutory or common law notice requirements at law or in equity and waives any entitlement to notice or pay in lieu of notice over and above the minimum amount set out in the applicable provincial or territorial employment standards legislation."

The Court held that the termination clause did not conflict with the ESA, as it directly stated the employer would comply with the provincial legislation. Similarly to the case in Nemeth, the clause in Salam did not specifically reference severance pay under the ESA; in fact, this silence means the employer would comply with the ESA requirements.

The end result? Again, the employee got only the minimum ESA requirements.

Impact:

Prior to these decisions, there had been much uncertainty as to when a termination clause would be enforceable. Although that uncertainty has not been entirely resolved, these decisions seem to suggest the following to employers and employees alike:

In a time where termination clauses appear to be getting longer and wordier, courts may prefer simpler language. The requirement for these clauses to be enforceable appears to simply be a clear statement to default to the ESA rather than the common law. Lengthy and cumbersome legal language may be more vulnerable to attack.

As always, don't enter into an employment contract with a termination clause without speaking to your employment lawyer.

*Article contributed Hannah Goranson