Employers should review the termination provisions in their
employment agreements following a recent decision of the Ontario
Superior Court of Justice. In Wright v. The Young and Rubicam Group
of Companies,1 the Court held that "all
inclusive" termination provisions that do not specifically
account for the continuation of benefits or that could result in an
employee receiving less notice or severance pay than required under
the Employment Standards Act, 2000 (the "ESA") are void
John Wright was dismissed without cause from his position with
Young & Rubicam ("Y&R") after five years of
service. Wright's employment agreement with Y&R contained a
termination provision which capped his entitlement to pay in lieu
of notice and severance pay in the event of a dismissal without
cause. The termination provision also contained "all
inclusive" language as follows:
This payment will be inclusive of all notice, statutory,
contractual and other entitlements to compensation and statutory
severance and termination pay you have in respect of the
termination of your employment and no other severance, separation
pay or other payments shall be made.
The termination provision was silent as to Wright's benefits
termination provision void
Wright brought an action against Y&R alleging that the
termination provision was void on two grounds. First, he argued
that the provision was unenforceable because it did not provide for
continuation of benefits during the notice period as required by
section 61(1)(b) of the ESA. Second, he argued that the provision
was unenforceable because the limits imposed by the provision could
– in certain circumstances – be less
than the combined amount of notice and severance pay required by
In response to Wright's first allegation, Y&R claimed
that benefits implicitly continue during the notice period in
accordance with the requirements of the ESA. Therefore, a
termination provision need not specifically address the question of
benefit continuation. As to Wright's second allegation, Y&R
argued that the payment to Wright was in excess of his entitlement
to notice and severance under the ESA.
The Court sided with Wright on both counts.
The Court held that the termination provision was void because
it violated section 61(1)(b) of the ESA, which states that an
employer who terminates an employee's employment with pay in
lieu of notice must continue an employee's participation in all
benefit plans during the statutory notice period.
According to the Court, when pay in lieu of notice is
characterized as being inclusive of all entitlements to
compensation, it follows that no other forms of compensation (such
as benefits) will flow to a dismissed employee. The Court added
that even if an employer does continue to pay benefits during the
notice period – which Y&R in fact did – the meaning
and effect of the provision is not changed. In other words, an
"all inclusive" termination provision that does not
account for the continuation of benefits is void and unenforceable
regardless of whether benefits are continued post-termination.
The Court further found that because the language of the
termination provision could, under certain circumstances, provide
for less notice and severance pay than the statutory minimums under
the ESA, it was unenforceable even though Wright received more than
the statutory minimums. In the Court's view, if a termination
provision could provide for less than the statutory minimum, it is
unenforceable even if the formula for a particular employee at the
time of dismissal results in a greater benefit.
In the end, the Court ordered Y&G to provide Wright damages
on account of 12 months pay in lieu of notice.
what this means for employers
It is imperative that when drafting an all inclusive termination
provision, employers in Ontario2 specifically account
for the continuation of benefits during the notice period. It is
also crucial that employers in all jurisdictions ensure that their
termination clauses provide for the minimum amount of notice and
severance, if applicable, under applicable legislation at all
times. An employer should ensure that the termination language in
its employment agreements provides that in no event will an
employee receive less than his or her statutory entitlement. This
may be of particular concern for employees who receive bonuses or
commissions, as the calculation of pay in lieu of notice or
severance pay under employment statutes may capture incentive
compensation over and above base salary. Failure to take either
precaution may result in an unexpected pay day for a dismissed
1 2011 ONSC 4720
2 As well as in the Northwest Territories and Yukon,
where employment standards legislation contains similar
The foregoing provides only an overview. Readers are
cautioned against making any decisions based on this material
alone. Rather, a qualified lawyer should be consulted.
Unfortunately, reasonable accommodation for employees in the workplace continues to be the source of significant litigation and even today we continue to see outrageous examples of employers behaving badly.
We are now beginning to see reported cases involving charges and subsequent fines laid against employers for failing to provide information, instruction and supervision to protect a worker from workplace violence.
On October 13, 2016, the Supreme Court of Canada denied leave to appeal an Ontario Court of Appeal decision which ordered an employer to pay a former employee 37 months of salary and benefits following termination.
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