Canada: Termination Clause Unenforceable Where Falls Below Statutory Requirements

The recent decision of Miller v. A.B.M. Canada Inc., 2014 ONSC 4062 involved a claim for wrongful dismissal damages in which the Plaintiff successfully argued that a contractual termination provision was unenforceable.

On the facts, the employee signed an employment contract at the time of hire stating that, "Regular employees may be terminated at any time without cause upon being given the minimum period of notice prescribed by applicable legislation, or by being paid salary in lieu of such notice or as may otherwise be required by applicable legislation."

The employee was given a letter of termination which provided him two weeks of salary in lieu of notice inclusive of a car allowance. Alternatively, the employee was offered four weeks of salary plus car allowance if that offer was accepted by a particular deadline (not clear whether this was in exchange for a release). Because the employee failed to accept the letter by the stipulated deadline, he received two weeks of pay plus vacation with no amount representing a car allowance or pension contributions.

The Plaintiff alleged that the termination provisions of the employment agreement were null and void and as such the reasonable notice period should be calculated based on common law principles.

On the contrary, the employer argued that the contract clearly stipulated in plain language that an employee is entitled to be paid, "the minimum period of notice as provided for in the legislation".

The Court held that the termination clause, as it was drafted, was unenforceable as it fell below legislated minimums. In particular, the Court held that the termination language in the contract failed to provide for the payment of benefits, specifically, the car allowance and the 6% pension contribution, during the notice period. As such, the termination provision was rendered unenforceable and reasonable notice period at common law would be implied into the employment terms.

In considering the Bardal factors for common law notice, the Court noted that the employee was mid-level management, employed for 17 months, 39 years of age.  The court found that there were "no efforts amounting to inducement or promises of job security beyond the normal types of persuasive comments expected by employers toward employees in the job market."

The court awarded the employee a notice period of three months as well as a car allowance and 6% pension contribution for a period of three months.  This notice period seems, in the circumstances, quite excessive for an employee who worked less than two years, but illustrates the risks for employers of rich notice periods being read into a contract in the absence of limiting termination provisions.

This decision highlights the risks for employers if their termination provisions fall below statutory minimum requirements. Plaintiff's lawyers will undoubtedly seek to rely on this decision wherever termination provisions do not appear to provide for benefits over the notice period. Employers should ensure that their contracts are clearly and unambiguously consistent with minimum standards. But Plaintiffs should not be allowed to get carried away.  Employers should aggressively defend their contractual terms where the intention and language in fact is consistent with minimum standards. Important considerations may include that reference to "notice" does implicitly include benefits. As well, termination provisions that provide greater salary payments than the ESA may in some circumstances legitimately not include benefit provisions. Where greater benefits are provided, the minimum standards of the Employment Standards Act, 2000 are ousted.

The moral of the story is that while contractual termination language is prudent to avoid application of the common law and its implied terms of reasonable notice, such terms cannot fall below statutory minimums. To be enforceable they must clearly be equal to (assuming adequate consideration) or greater than minimum standards to be enforceable.

Norton Rose Fulbright Canada LLP

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