Employers often seek to limit their termination liability with
termination clauses. If a termination clause does not meet the
minimum requirements of the Employment Standards Act, 2000
("ESA"), then the termination clause will not be valid
and an employee will be entitled to reasonable notice at common
law, thus increasing an employer's liability (see, for example,
Machtinger v. HOJ Industries  1 SCR 986 (SCC)).
Recent decisions over the last few years from the Ontario courts
have provided employers with a cautionary warning regarding how
termination clauses in employment contracts should be drafted.
The ESA requires employers to continue benefits during the ESA
notice period when terminating employment without cause, whether or
not working notice is provided. Where an employer fails to
expressly state in a contract that an employee's benefits will
continue throughout the ESA notice period, the termination clause
may be unenforceable.
In Wright v The Young and Rubicam Group of
Companies (2011, ONSC) ("Wright"), the
Court found that the termination clause in the employment contract
was unenforceable. In this case, the contract included a specific
termination clause that provided a formula for payments to be made
to the plaintiff in lieu of notice. Depending on years of service,
the plaintiff would be entitled to the payment of a certain number
of weeks of base salary. The contract stated that the termination
payment was inclusive of all other compensation entitlements. On
termination, the employer also continued benefits as required by
the ESA. The Court held that the wording of the termination
provisions were intended to be inclusive of "all...
entitlements to compensation". Benefits were held to be part
of compensation. The Court held that the termination provision in
the contract referred to payment of base salary only and meant that
there would be no other compensation provided to the plaintiff,
including benefits. The fact that the employer continued the
benefits for the ESA period did not change the meaning of the
In Stevens v Sifton Properties Limited
(2012, ONSC) ("Stevens"), the termination clause
stated that payment in lieu of notice in accordance with the ESA
would be provided where the employer terminates the relationship
without cause. The termination clause stipulated that such payment
satisfied all future claims against the employer. The Court
determined that the clause, in addressing benefits implicitly, did
so in a way that "purports to take those [rights of benefits]
away upon mere payment of the required pay in lieu of notice."
The Court held that this was contrary to the ESA, as the language
denied benefit continuation during the ESA notice period and the
termination clause was therefore void.
The Court provided further guidance to employers in its most
recent decision in Howard v Benson Group. (2015, ONSC)
("Howard") In this case, the Court grappled with
the wording of a termination clause that stated that the employer
could terminate the employment relationship at any time and that
"any amounts paid" would be in accordance with the ESA.
The plaintiff argued that the wording "amounts paid" was
not clearly explained in the contract, and given its ambiguity, it
was unclear as to whether or not "amounts paid" referred
to base salary alone or was inclusive of benefits. The Court agreed
with the plaintiff and held that the word "paid" was not
inclusive of benefits, as it is not a defined term under the ESA.
The continuation of benefits under the ESA was held to be a
separate requirement from the payment of notice. The Court, echoing
other cases, noted that a termination provision that might be
ambiguous will be interpreted against the employer and in favour of
The Wright, Stevens, and Howard cases confirm that
employers must be cautious when drafting termination clauses to
limit liability upon termination. Any ambiguity will be interpreted
against the employer, which will result in the clause not being
enforceable and reasonable notice at common law will apply.
Moreover, these recent cases make it clear that any termination
clause should expressly state that benefits will be continued for
the ESA notice period. We recommend that all employers review any
employment contract templates to ensure that the termination
clauses comply with the minimum standards of notice, severance pay,
and benefit continuation required by the ESA.
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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