fév. 22. 2017

Uncertainty with Termination Clauses Continues

Cook v Hatch Ltd., 2017 ONSC 47 (CanLII)

There are few areas of employment law more in flux (and vexing to lawyers) than that surrounding the enforcement of termination clauses. Part of the frustration is when the Courts provide seemingly contradictory messages on whether termination clauses will be upheld. In January 2017 alone, the Ontario Superior Court of Justice released two decisions that appear, on their face, to be somewhat at odds.

Clause enforceable - Cook v. Hatch Ltd., 2017 ONSC 47

Termination Clause: The Company’s policy with respect to termination is that employment may be terminated by either party with notice in writing. 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.

Cook is a relatively straightforward wrongful dismissal case. The only matter at issue on a summary judgment motion before the Court was whether the contractual termination clause (reproduced above) was enforceable. Cook sought to have the termination clause declared unenforceable and brought the following arguments:

  • That the reference to “applicable labour legislation” (as opposed to the governing Employment Standards Act, 2000) was ambiguous;
  • By failing to reference “severance pay” the clause was ambiguous as to whether it met with minimum statutory standards; and
  • By failing to reference “benefits” or “benefit continuation” the clause was ambiguous as to whether it attempts to opt out of statutory protections.

The Court rejected each of these arguments. It held that the “intention” of the parties as demonstrated in the employment contract was clear – that entitlement to severance would be limited to the minimum amounts as required by statute and nothing more. Further, the Court re-affirmed the principle that “silence” around subjects such as severance pay or benefits continuance in a termination clause need not be fatal to its enforcement.

Clause unenforceable – Vinette v. Delta Printing Limited, 2017 ONSC 182

Termination Clause: Delta may terminate your employment at any time on a without cause basis by providing you with written notice of termination or payment in lieu of that notice and severance pay, if applicable, mandated by the ESA. In the event of without cause termination Delta will continue those benefits mandated by the ESA for the period required by the ESA, and you will be responsible for the replacement of such benefits thereafter.

As with Cook, the Court in Vinette was asked whether the above termination clause was enforceable. Vinette successfully argued that the clause as drafted failed to rebut the common-law presumption of entitlement to reasonable notice of termination. To rebut the common law, the Court stated that “the words of limitation must be clear and the significance of the provision must be made clear.” Put simply, the problem for Delta was that its termination clause only promised to comply with the minimum statutory standards and nothing more. This must be true whether or not an employer states as such in an employment contract. By not adding something more, such as language specifically stating that the statutory minimums were the employee’s exclusive entitlement upon dismissal, the Court was not satisfied that the common law had been rebutted.

What does it all mean?

How to get termination clauses right continues to be a matter of debate. As the above examples show, two termination clauses (which were not that dissimilar) led to two very different results. That said, a few takeaway points can be found:

  1. Diverging case law – it is becoming more and more clear that there is a split in Ontario case law with respect to the enforcement of termination clauses. Something of a formula may now be discerned:
    1. If you want to enforce a clause, rely on decisions like MacDonald v. ADGA Systems International Ltd. (OCA), Roden v. Toronto Humane Society (OCA) and Oudin v. Centre Francophone de Toronto, Inc. (ONSC).
    2. If you want to turn aside a clause, cite cases like Ceccol v. Ontario Gymnastic Federation (OCA), Wright v. The Young and Rubicam Group of Companies (ONSC) and Miller v. A.B.M. Canada Inc. (ONSC).
  2. Do not take chances - the judicial uncertainly on termination clauses is not going away anytime soon. The Supreme Court recently took a pass on providing greater clarity on the subject. As such, it is more important than ever to seek legal advice on any termination clause prior to relying on it for an employee dismissal.
  3. Consider more than the minimums – finally, when drafting employment contracts, consider giving more than the statutory minimum amounts for termination purposes. Not only does this have the impact of making an employer look more generous but it can also help to reduce the likelihood that employees will contest severance or argue that common law rights have not been rebutted. Sometimes it pays to spend a little to save a lot.

This article was originally published on February 17, 2017 on First Reference Talks.

Vey Willetts LLP is an Ottawa-based employment and labour law boutique that provides timely and cost-effective legal advice to help employees and employers resolve workplace issues in the National Capital Region and across Ontario.