Canadian Employment Law Today

February 26, 2020

Focuses on human resources law from a business perspective, featuring news and cases from the courts, in-depth articles on legal trends and insights from top employment lawyers across Canada.

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6 | February 26, 2020 Cases and Trends Canadian HR Reporter, 2020 Employment Standards Act (ESA). It stated with finality that benefits would cease after four weeks, yet the ESA mandates that employees of four years or more are entitled to benefits con - tinuation for longer than four weeks. Interestingly, Rossman had been employed for three years and nine months at the time of his termination and so would have been entitled to less than four weeks' benefits con - tinuance, but that did not assist the employer. A potential conflict with statutory minimums is sufficient to void a termination clause. The court stated: "It is not open to this court to save the impugned provision of the [agreement] with the benefit of hindsight. ...Accordingly, it is irrelevant whether the impugned provision accords with the minimum employment stan - dards in certain circumstances." The court noted that the termination clause was ambiguous as it would have left Rossman uncertain as to what his entitlement to benefits continuance on termination would be — four weeks as stated in the contract or a longer pe - riod based on statute. As a result, Rossman was entitled to five months' notice of termination. The saving clause The termination clause also contained a classic saving provision, which provided that "if the minimum statutory requirements as at the date of termination provide for any greater right or benefit than that provided in this agreement, such statutory requirements will replace the no - tice or payments in lieu of notice contemplated under this agreement." The employer argued that this saving provi- sion salvaged the intention of abrogating Ross- man's right to reasonable notice of termination. The court disagreed, stating: "The termination clause is ambiguous, and the ambiguity is not erased by the saving provision." The four-week benefits clause showed an intention to contract for a lesser benefit than provided for in the ESA and the saving provision could not reconcile the "direct conflict" between that and the re - mainder of the clause. The court concluded: "In this context, saving provisions in termination clauses cannot save employers who attempt to contract out of the ESA's minimum standards." Although this ruling could significantly re - strict the utility of saving clauses for termina- tion provisions, it does not render such clauses ineffective in all circumstances. The court dis- tinguished but did not dispute the recent On- tario Court of Appeal case of Amberber v. IBM Canada Ltd., where the Court of Appeal was willing to "read up" a termination clause to make it consistent with legislation, giving effect to a contractual saving provision. Unlike Ross - man's clause, which expressed an intention to contract out of the statutory minimums, the termination provision at issue in Amberber was capable of an interpretation in compliance with the ESA — there was no explicit inconsistency between that saving clause and the remainder of the termination provision. The broader context: unequal bargaining power In recent years, courts have been whittling away at the strategies that employers use to get around faulty drafting and secure favourable terms in their employment agreements. Here are a few popular strategies that have come under fire: • Notional severance: This is a technique that involves reading down an unenforceable provi - sion in a contract to make it legal and enforce- able. Notional severance involves literally adding new words to the parties' agreement. In doing so, courts supplant the parties' intentions with alter- native terms. In workplace contexts, employers have tried to rely on notional severance to save re- strictive covenants that are unreasonably broad. For example, an employer might argue that a clause preventing an employee from competing with the company for 10 years after termination should be read down to restrict competition for a more reasonable two years. That would allow the employer to overreach when drafting the clause, without the associated risk of the clause being entirely unenforceable. Citing the inequality of bargaining power in employment contexts, the Alberta Court of Appeal rejected this practice: "Employers should not be permitted to draft un - reasonably broad restrictive covenants with the expectation that, should the matter ever come to trial, the court will simply re-write the clause so as to make it enforceable" (Globex Foreign Ex- change Cxorporation v. Kelcher). In Shafron v. KRG Insurance Brokers (Western) Inc., the Supreme Court of Canada effectively ended this practice, holding that "notional severance is not an appro- priate mechanism to cure a defective restrictive covenant." • Blue-pencil severance: This technique involves a judge striking out an illegal portion of a contract so that the remainder is enforceable. Unlike the more controversial notational severance, blue- pencil severance does not involve adding new words to the contract. Nevertheless, blue-pencil severance will not be available in many instances where an employer seeks to salvage an overreach - ing restrictive covenant. In Shafron, the Supreme Court held: "As for blue-pencil severance, it may only be resorted to in rare cases where the part being removed is trivial, and not part of the main purport of the restrictive covenant." • Step-down clauses: Another favourite among companies that want to have their cake and eat it, too, a step-down clause (also known as a wa - terfall, ladder or Russian doll clause) involves including multiple alternative provisions re- lated to the same subject and then asking the court to enforce the most restrictive one that is compliant with the law. For example, a non- competition agreement might provide that the employee shall not compete with the employer for 10 years after termination; or in the alterna - tive, seven years; or in the further alternative, five years. This practice has been widely discredited in restrictive covenants. In Bonazza v. Forensic Investigations Canada Inc., the court addressed a non-competition clause with a descending scope geographic restriction, including alterna - tive terms providing for progressively less re- striction on the location within with the worker could compete with the company. The court opined that "a descending scope geographic restriction is by its very nature ambiguous, and therefore always unenforceable… In my opin - ion, Shafron sounds the death knell for descend- ing scope restrictive covenants." This jurisprudence is consistent with the tra- ditional role courts have often taken to protect- ing employees in a context of unequal bargain- ing power. In most circumstances, employees have limited ability to negotiate favourable terms and courts generally acknowledge that employment contracts are different than typical commercial agreements. "Employers must have an incentive to comply with the ESA's minimum notice requirements," said the Ontario Court of Appeal in Rossman. "They cannot be permitted to draft provisions that capitalize on the fact [that] many employ - ees are unaware of their legal rights and will of- ten refrain from challenging notice provisions in court." Yet this is not to say that companies should never include saving clauses in their employ- ment contracts or use similar techniques to hedge their bets. Sometimes, saving clauses can save the day, as indicated in Amberber v. IBM Canada Ltd. However, it is dangerous to rely on them. Employers are better off taking care to en - sure that all clauses in their contracts are prop- erly drafted in the first place. For more information, see: • Rossman v. Canadian Solar Inc., 2019 ONCA 992 (Ont. C.A.). • Amberber v. IBM Canada Ltd., 2018 ONCA 571 (Ont. C.A.). • Globex Foreign Exchange Corporation v. Kelcher, 2005 ABCA 419 (Alta. C.A.). • Shafron v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6 (S.C.C.). • Bonazza v. Forensic Investigations Canada Inc., 2009 CanLII 32268 (Ont S.C.J.). Matthew Tomm is a sole practitioner in Calgary. He advises employers and employees in all aspects of employment and human rights law. Tomm can be reached at (430) 264-4855 or tomm@mat - « from SAVING CLAUSE on page 1 Many employees are unaware of their legal rights

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