The Courts Have Spoken: Termination Clauses MUST be “Compliant” “Clear” and “Unambiguous”

In the past month, the Ontario Superior Court and Ontario Court of Appeal have released two decisions that have continued the recent trend of overturning termination agreements in favour of the employee.

Recent Case Law

If you recall, earlier this year we wrote a blog about a significant case, Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158 (CanLII). In this case the Ontario Court of Appeal determined that any breach of the Ontario Employment Standards Act, 2000 (ESA) in a termination clause of an employment contract, will render it unenforceable.

More recently, in North v. Metaswitch Networks Corporation, 2017 ONCA 790 (CanLII), the Ontario Court of Appeal applied the rule stemming from Wood, to void an entire termination clause due to one provision that that was deemed to violate the minimum requirements of the ESA. In response, the employer argued that if the termination clause was illegal because of only one offending sentence, then that sentence should simply be expunged using the Agreement’s severability clause. The Court rejected this argument indicating that it is an error in law to merely void the offending portion and leave the rest of the termination clause to be enforced. This effectively rendered both the Agreement’s termination and severability clause null and void and ultimately, entitled the employee to a much more weighty notice period payment.

Only days later, the Ontario Superior Court added more fuel to the fire by releasing its decision in Nogueira v. The Second Cup Ltd., 2017 ONSC 6315 (CanLII). In this case, the Court considered a termination clause that used bare language to indicate that the employer would obey the statute in the applicable province. In rendering its decision, the Court echoed the earlier sentiments put forth in Wood, indicating that when ambiguity exists in the interpretation of a termination clause, the Courts should rule in favour of the employee. The Court found that the termination clause lacked sufficient language to merely limit the employee to their statutory entitlements.  Therefore, instead of the employee receiving one (1) week of pay in lieu of notice in accordance with the clause, the employee was awarded four (4) months’ pay after only being with the company for eight months!

What Employers Can Learn

The key message from these recent cases, is that the Courts will protect employees, and accordingly, that employers will be held to a very high standard when seeking to defend an ambiguous or deficient termination clause.

Furthermore, the Courts have made it clear that if employers seek to rely on their termination clauses and limit an employee’s entitlement, it is absolutely crucial to have a well-drafted termination clause in their employment agreements.

When assessing your company’s existing termination clause, consider these key principles:

  1. The ESA is fundamentalAny attempt to contract out of or waive a provision of the ESA is illegal and will render a termination clause unenforceable.
    • TIP: One word could be non-compliant with the ESA and render the entire clause unenforceable. Make sure your employment agreements are professionally reviewed!
  1. Be Clear and UnambiguousEmployers can only limit their obligation to provide reasonable notice of termination if they have done so clearly and unambiguously.
    • TIP: Use clear, plain language in contracts – ambiguity will only serve to work in employee’s favour.

Above all else, one thing is for certain: an enforceable employment agreement could save you, as an employer, significant costs (both in terms of payouts and legal fees incurred) and liability down the road.

If your company does not currently have employment agreements in place or if your employment agreements are outdated and in need of review, we are here to help.  Contact us today to learn how a proper employment agreement can help you minimize risk and cost for your company.

Disclaimer: this post is intended for educational and non-commercial purposes only and is not intended to be a source of legal advice to any person in respect of any particular legal issue; it does not create a solicitor-client relationship with any readers. If you have a legal issue or possible legal issue, please contact us.

Thank you to Articling Student Arjun Dhir for the research and writing of this article.

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