Canada: "And Benefits" – Two Missing Words Invalidate A Termination Provision

Employers and their counsel keep trying to produce employment contracts which will stand up to judicial scrutiny. Termination provisions are among the most important – and vulnerable – terms of any contract.

The Ontario Superior Court of Justice in Stevens v. Sifton Properties Ltd., 2012 ONSC 5508 (CanLII) (Justice Leach – Oct. 9, 2012) ("Stevens") provides what should be a cautionary tale for employers and the drafters of employment contracts. This decision confirms that benefits reflecting at least minimum legislative requirements must be explicitly included in termination provisions in order for the provisions to be valid and enforceable.

The former employee and plaintiff Stevens sought greater damages than what had been originally agreed in the contractual termination provision. Sifton wanted to enforce the contract. In the decision, Justice Leach was asked to consider the enforceability of a contractual termination provision on a motion pursuant to Rule 20 for summary judgement. The provision in question read as follows:

"13. With respect to termination of employment, the following terms and conditions will apply:

  1. The corporation may terminate your employment for what it considers to be just cause without notice or payment in lieu of notice;
  2. The corporation may terminate your employment without cause at any time by providing you with notice or payment in lieu of notice, and/or severance pay, in accordance with the Employment Standards Act of Ontario;
  3. You agree to accept the notice or payment in lieu of notice and/or severance pay referenced in paragraph 13(b) herein in satisfaction of all claims and demands against the corporation which may arise out of statute or common law with respect to the termination of your employment with the corporation"

The plaintiff argued three grounds on which the provision was not enforceable: 1) the legislation referenced was the predecessor legislation; 2) the provision provided a "floor" amount, but did not specify that the "floor" was also a "ceiling"; and, 3) the provision did not explicitly provide for benefits upon termination.

Justice Leach rejected the first argument that the statutory reference to the predecessor legislation was fatal to the provision. He found that the wording used was a descriptive reference, and that it was sufficiently clear to show the intention of the parties. 

Justice Leach also rejected the second argument that the contractual stipulation needed to be expressed as a "ceiling" as well as "floor" in order to be clear. He relied upon the Ontario Court of Appeal decision of MacDonald v. Adga Systems International Ltd., 1999 CanLII 3044, and found that as long as the minimum notice period provided did not conflict with the legislative requirements, it would suffice to displace the common law presumption of and entitlement to reasonable notice.

The aspect of Stevens that will resonate most loudly is the court's analysis with respect to the plaintiff's third argument regarding the provision of benefits upon termination. 

In this particular situation, the contractual termination provision permitted the employer to provide "notice or payment in lieu of notice" without any reference to the provision of benefits. Justice Leach seized upon this in order to declare the contractual provision null and void thereby entitling the plaintiff to reasonable notice in accordance with the requirements of the common law.

In so finding, Justice Leach referred to the provisions of Sections 60(1) and 61(1) of the Employment Standards Act which require an employer to continue to make benefit plan contributions throughout the period prescribed by Section 57 of the Act for any period or notice or pay in lieu of notice, as well as recent case law finding that although the plaintiff was paid benefits, the contract's failure to provide for them was fatal. Finally, Justice Leach made reference to section 5 of the Act which renders void any attempt to contract out of the Act.

So what does Stevens mean for employers?

This decision cautions employers that any ambiguity which might possibly lead to an employee receiving anything less than the minimum legislative requirements can render the provision void. Stevens also echoes the Ontario Court of Appeal decision in Bowes v. Goss Power Products Ltd., 2012 ONCA 425 (CanLII) where it was found that a duty to mitigate must be clearly provided for in an employment contract. Both Stevens and Bowes warn employers that they must express their intentions in clear and specific language in the contract and that the doctrine of contra preferentum applies so as to resolve any ambiguities in the favour of the employee.

This case is just another recent example of the willingness of the judiciary to circumnavigate restrictive contractual termination provisions in order to provide employees with reasonable notice at common law. Contact your Gowlings labour and employment lawyer for advice regarding the wording of termination provisions.

This article was authored by Jennifer McKenzie and Mark Josselyn. Jennifer McKenzie will join Gowlings as an Associate in August 2013.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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