Canadian Employment Law Today

Canadian HR Reporter, 2019 Canadian Employment Law Today | 3 Cases and Trends Making sense of termination clauses To sever or include the minimum entitlements? BY NATHANIEL MARSHALL TO AVOID paying employees common law reasonable notice upon termination of their employment, employers will often include a termination clause in the employment agreement to limit entitlement to the mini- mums prescribed under applicable employ- ment standards legislation. In Ontario, for example, employees are only entitled to one week of notice per year of service up to eight weeks and, if applicable, a maximum of up to 26 further weeks of severance pay. On the other hand, common law reasonable notice awards — determined by the employee's age, length of service, character of employ- ment, and availability of suitable employ- ment — now range as high as 30 months. Determining what makes a termination clause valid and enforceable is an issue that continues to plague counsel and the courts alike. Ontario courts have recently ad- dressed key issues on the enforceability of termination provisions — the importance of all-inclusive language, clarity and severabil- ity provisions. Severing the minimum entitlements Oudin v. Centre Francophone de Toronto is a 2016 decision of Ontario's Court of Ap- peal that seemed to cause a great deal of un- certainty regarding the interpretation and enforceability of termination clauses. e employer (CFT) terminated the employee's employment without cause after 13 years of service, providing eight weeks' pay and 13 weeks' severance pay. e employee, Oudin, rejected the sepa- ration package and commenced an action for wrongful dismissal, arguing the termi- nation clause was unenforceable because it only referred to notice, not benefits con- tinuation and severance pay. e termina- tion clause provided 15 days' notice "or the minimum prescribed by the (ESA)," or pay in lieu thereof. e clause also stated that if any provi- sions were invalid, they would be modified or nullified "to the extent necessary to com- ply" with legal requirements and the rest of the agreement would still be in force. e motions judge found that the CFT did not attempt to contract out of the ESA. Even though the termination clause did not pro- vide for benefits continuation or severance pay, it specified the ESA would prevail over the employment agreement in the event of any inconsistency. ough some of the min- imum entitlements had been severed from the termination clause, the catch-all provi- sion was enough to provide for ESA compli- ance. e Ontario Court of Appeal agreed. A failed attempt at all-inclusive language Shortly after Oudin, the Ontario Court of Appeal addressed termination clauses again in Wood v. Fred Deeley Imports Ltd. e em- ployee, Wood, had been employed for eight years and was terminated without cause. She had an employment agreement with a termi- nation clause providing "two weeks' notice of termination or pay in lieu thereof for each completed or partial year of employment with the company." It also stipulated "the company shall not be obliged to make any payments to you other than those provided for in this paragraph… e payments and notice provided for in this paragraph are in- clusive of your entitlements to notice, pay in lieu of notice and severance pay pursuant to the Employment Standards Act, 2000." After receiving 13 weeks' working notice plus a lump-sum payment of eight weeks' salary, Wood sued for wrongful dismissal with a motion for summary judgment. She challenged the enforceability of the termina- tion clause on the basis that it violated the ESA, but was unsuccessful. e Ontario Court of Appeal overturned the motion judge's decision, finding that the termination clause was unenforceable be- cause the language excluded benefits con- tinuation during the statutory notice period and therefore violated the ESA. e court also found that by using the word "pay," it was not clear that it included both notice and severance pay. Although the employer had attempted to use all-inclusive language to capture each of the minimum entitlements, there was more than one possible interpreta- tion — one of which violated the ESA. An improved approach to all-inclusive language e Ontario Court of Appeal attempted to provide more clarification on termination clauses in Nemeth v. Hatch, where the em- ployer terminated the employee's employ- ment without cause after 19 years of service. e impugned termination clause allowed for notice of "one week per year of service with a minimum of four weeks or the notice required by the applicable labour legislation." e employee, Nemeth, received eight weeks' notice and benefits continuation plus 19.42 weeks' salary as statutory severance pay. He sued for wrongful dismissal claiming the termination clause was unenforceable, but was unsuccessful. Nemeth appealed the decision, arguing the termination clause: • Did not explicitly displace the common law presumption of reasonable notice • Was silent on the provision of severance pay, and therefore contracted out of the ESA • Could be interpreted as providing for 19 weeks' notice instead of eight weeks' notice. e Court of Appeal rejected the first ar- gument on the basis that the language clearly displaced the right to common law reason- able notice. Second, it found that although the clause was silent on severance pay, there was no intention to contract out of it. As a small concession, the court accepted that the clause could be interpreted as providing for 19 weeks' notice, finding that Nemeth was entitled to this amount. Severability, inclusion and a way forward In Movati Athletic (Group) Inc. v. Bergeron, the Ontario Divisional Court affirmed that even where a termination clause refers to all the ESA entitlements, it will be unenforceable if it does not clearly oust the common law. e impugned termination clause allowed for "notice or pay in lieu of notice, and severance, if applicable, pursuant to the Employment Standards Act, 2000, and subject to the con- tinuation of your group benefits coverage, if applicable, for the minimum period required by the Employment Standards Act, 2000" in the event of without-cause termination. e motions judge held that the termina- tion clause did not clearly state that the em- ployee would not be entitled to reasonable notice at common law. e motions judge stated that if the termination clause had been drafted such that it provided, "upon termina- tion, severance, if applicable will be paid only pursuant to the ESA … only for the minimum required period required by the ESA" the lan- guage would be clear enough to exclude com- mon law notice. e Divisional Court agreed the language did not clearly limit the employ- ee's entitlement to only the ESA minimums. e law isn't exactly crystal clear on en- forceability of termination clauses. Notwith- standing the apparently piecemeal approach by Ontario courts on what is required to draft an enforceable termination clause, it is clear that caution must be exercised. For more information see Oudin v. Centre Francophone de Toronto, 2016 ONCA 514 (Ont. C.A.); Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158 (Ont. C.A.); Nemeth v. Hatch, 2018 ONCA 7 (Ont. C.A.); Mo- vati Athletic (Group) Inc. v. Bergeron, 2018 ONSC 7258 (Ont. Div. Ct.). Nathaniel Marshall is an associate law- yer with Turnpenney Milne LLP, practic- ing in all areas of employment and labour law. For more information visit turnpen- neymilne.ca.

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