Canada: Clear And Unambiguous Termination Provision Provides Protection For Employer

Last Updated: August 3 2015
Article by Michelle D. MacGillivray

The decision in Luney v. Day & Ross Inc. (2015, ONSC) ("Luney") demonstrates how clear, unambiguous termination provisions in an employment agreement can help an employer limit their liability when terminating an employee without cause.

Where an employer does not have cause to terminate a non-union employee and where there is no provision specifying the period of notice of termination or the duration of employment in an employment agreement, there is an implied obligation at law on the part of an employer to provide "reasonable notice" of termination or pay in lieu of notice. At common law, reasonable notice of termination varies depending on factors such as the employee's age, length of service, character of employment and availability of alternate employment. There is no absolute limit on reasonable notice, but it will only exceed 24 months in exceptional cases.

Common law notice is generous relative to the minimum requirements of employment standards legislation, and an employee may dispute his or her common law entitlements upon termination. As a result, many employers, including the Defendant in Luney, use a written contract of employment with a termination provision to rebut the presumption of reasonable notice at common law and specify a pre-determined length of notice. To be enforceable, a termination provision must: (i) provide the employee with no less than his or her entitlements under the applicable employment standards legislation; and, (ii) clearly confirm the notice specified in the termination provision is a cap on the employee's entitlements.

In Luney, the Plaintiff worked for an interprovincial trucking company subject to the Canada Labour Code (the "Code").  The Defendant terminated the Plaintiff's employment without cause and offered the Plaintiff a severance package that the Defendant asserted was consistent with the termination clause set out in the Plaintiff's contract of employment.

The Plaintiff brought a motion for summary judgement, seeking a finding that the termination provision was unenforceable on two grounds: (i) it was ambiguous and therefore did not rebut the presumption of reasonable notice at common law; and, (ii) it violated the Code on the basis that it did not provide for benefits.

The motion judge dismissed the Plaintiff's motion for summary judgement.  The Plaintiff then appealed to the Divisional Court.  The termination provision in the Plaintiff's contract of employment read, as follows:

Your employment may of course, be terminated at any time for 'just cause', in which case you will not be entitled to any notice or severance payment.

If your employment is terminated for other than 'just cause', or if a competent tribunal should rule that your termination was 'unjust', you will be entitled to two weeks [sic] notice or pay in lieu of notice and a severance of one week's regular pay for each full year of service, less statutory deductions. The payments are not to exceed the equivalent of 15 weeks [sic] pay.

It is understood and agreed that in the event the aforesaid notice and severance entitlements are not in conformity with the notice and severance provisions prescribed by the [Code] or other similar legislation, the statutory minimum's [sic] shall apply and be considered reasonable notice and severance. Discussion of individual salaries may be grounds of dismissal.

The foregoing notice and severance payments will satisfy any and all obligations to you by Day & Ross Inc. or any affiliated company arising out of or in any way connected with the termination of your employment, including any obligations arising under the [Code] and similar legislation for notice, severance pay or reinstatement.

In dismissing the appeal, the Divisional Court found the wording of the termination provision was sufficiently clear to rebut the presumption of reasonable notice at common law.

The Divisional Court also rejected the Plaintiff's argument that because the termination provision fails to reference benefits it therefore violates the Code.  This was as a result of the inclusion of the wording in the termination provision providing that if the severance entitlements are not in conformity with the severance prescribed by the Code, the statutory minimums shall apply.

In light of this decision, employers should ensure that termination provisions in new contracts of employment state that statutory minimums will prevail.  This will assist to defend against claims that the wording in the termination provision is unclear or otherwise unenforceable.  In addition, employers must be careful not to use imprecise wording that inadvertently restricts an employee's entitlement on termination to less than his or her statutory entitlements.

For existing contracts of employment, employers may only change the termination provisions by providing something of value to the employee.  Employers should consider updating existing contracts of employment with new termination provisions when employees are promoted to new positions, for example.     

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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Michelle D. MacGillivray
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