Many employers who seek to limit their liability upon
termination of an employee introduce termination clauses that
strictly limit an employee's entitlements to the Employment
Standards Act, 2000 ("ESA") bare
minimums. Whether or not these clauses are enforceable
for senior level employees has always been a cause for concern for
employers. Further, another issue that employers grapple with
is whether an employee's bonus should be included in the sums
awarded under a termination clause. A recent decision of the
Ontario Superior Court addresses both of these questions, and
provides some well-needed clarity for employers on the
In Dimson v. KTI Kanatek Technologies
Inc., 2012 ONSC 6556, a senior level Vice-President
who earned an annual salary of $165,000, received full benefits, a
car allowance, commissions, and a bonus based on the company's
earnings was terminated on a without cause basis, after working for
the company for six years.
At the time of hire, the employee signed an employment contract
that included a termination provision limiting his termination
entitlements to the minimums provided under the ESA.
After being terminated, the dismissed employee sued his employer
for wrongful dismissal, claiming that the termination clause was
unenforceable because the employer did not average his bonus
earnings in the calculation of his termination and severance
pay. The employer, on the other hand, maintained
that since the dismissed employee did not receive a bonus during
the twelve weeks prior to his termination, the bonus would not form
part of the termination and severance pay.
The termination clause in dispute provides as follow:
18(c) In addition, KANATEK may terminate this
Agreement at its sole discretion for any reason, upon providing
Employee all payments or entitlements in accordance with the
standards set out in the Ontario Employment Standards Act,
as may be amended from time to time.
18(d) If at any time KANATEK provides you with a
bonus, it will not be included in the calculation of payment for
the purpose of this Article or as otherwise agreed to or required
by the Employment Standards Act.
Upon a review of the above language, the motions judge agreed
with the employer, finding that the language in clause 18(d)
preserves the plaintiff's right to the inclusion of a bonus in
the calculation of his termination entitlements if he and the
defendant otherwise agreed or if it was required by the ESA. This
was the "plain, literal and sensible" meaning of clause
18(d). This finding was affirmed at the Ontario Court of
What then can employers take away from this decision? First, it
is notable that the court upheld a contractual provision that
severely restricted the termination entitlements of a dismissed
senior level employee.
Although the outcome in this case is favourable to employers,
employers should be prepared to draft clear and concise language of
any termination provision to avoid facing potential litigation
liability regarding the enforceability of termination clauses in an
employment contract. The lawyers at CCPartners can assist
employers in the drafting of employment agreements that include
termination and bonus provisions.
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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