Canada: Employment Termination Clauses: Failure To Specify Minimum Statutory Benefits After Dismissal, But Voluntary Provision Of Those Benefits

When a contract of employment provides for a notice of termination period that fails to satisfy the minimum statutory requirements,1 it is widely understood that the remedies of an employee who is dismissed without cause are not limited to those minimum standards. Instead, the employee is entitled to rely on the common law right to reasonable notice of termination, regardless of whether the notice that would be reasonable in the circumstances of the case exceeds the statutory minimum requirement.2 In such cases, those portions of the contract that provide for the insufficient notice period are "null and void" and cannot be used even as evidence of the intention of the parties for the purpose of determining what would constitute a reasonable notice period.3

Two recent Ontario decisions4 have considered an offshoot of that issue: If a termination clause provides for the minimum statutory notice period but fails to specify the continuation of minimum statutory benefits after dismissal without cause, does that trigger the right to the common law remedy even if the employer voluntarily provides those minimum statutory benefits after dismissal? Both decisions held that the answer is Yes. We express a contrary view.

In Wright, it was held that the contractual termination clause was unenforceable for two reasons: (i) contrary to s. 61(1)(b) of the Employment Standards Act (the "Act"), the contract did not provide for minimum statutory post-termination benefits but rather specifically excluded such benefits; and (ii) the minimum notice periods specified in the termination clause were less than the statutory requirements in certain circumstances. The latter reason is irrelevant for the purposes of this paper because we assume that the termination clause specifies a minimum notice period that meets or exceeds the statutory minimum. We might add that the notice period that was given in Wright appeared to satisfy the statutory minimum standard in the actual circumstances of the case, and that the failure to satisfy those standards in hypothetical situations was a dubious ground for the decision.

Returning to the first ground, the relevant provisions in the Act are as follows:

5(1) employer...shall contract out of or waive an employment standard and any such contracting out or waiver is void.

60(1)(c) During a notice period under section 57 or 58, the employer...(c) shall continue to make whatever benefit plan contributions would be required to be made in order to maintain the employeeâ€"s benefits under the plan until the end of the notice period.

61(1) An employer may terminate the employment of an employee without notice or with less notice than is required under section 57 or 58 if the employer,

(a) pays to the employee termination pay in a lump sum equal to the amount the employee would have been entitled to receive under section 60 had notice been given in accordance with that section; and

(b) continues to make whatever benefit plan contributions would be required to be made in order to maintain the benefits to which the employee would have been entitled had he or she continued to be employed during the period of notice that he or she would otherwise have been entitled to receive.

It was held in Wright that the termination clause was in violation of ss. 5(1) and 61(1)(b) of the Act because it did not provide for payment of benefits during the notice period, but rather only for payment of base salary.5 It is our view, however, that this did not result in contravention of either of those subsections. The bald statement that s. 5(1) was violated begged the question: In what way did the termination clause contract out of or waive a statutory employment standard (other than in the hypothetical scenarios referenced above)?

Section 5(1) would have been contravened only had the Act contained an employment standard requiring the contract to provide for the continued making of benefit plan contributions during the post-dismissal notice period. Neither s. 61(1)(b) nor any other provision in the Act contains that requirement. Sections 60(1)(c) and 61(1)(b) both require the employer to continue to make benefit plan contributions during the appropriate notice period, but that is a requirement for the making of such contributions in fact, not a requirement that the contract contain a provision calling for the making of those contributions. The employer in Wright complied with that factual employment standard. It did not breach a standard that required the employment contract to contain a provision calling for the making of such contributions for the simple reason that the Act does not contain any such standard. Both ss. 60(1)(c) and 61(1)(b) plainly and unambiguously address factual compliance with post-dismissal benefit plan contribution requirements, not minimum contract drafting standards.

Section 61(1)(b) in fact expressly authorizes an employer to terminate employment where, inter alia, the employer "continues to make whatever benefit plan contributions would be required to be made in order to maintain the benefits to which the employee would have been entitled had he or she continued to be employed during the period of notice that he or she would otherwise have been entitled to receive" (emphasis added). The employer in Wright did just that — it "continued to make" benefit plan contributions during the appropriate notice period. Not only did the employer not contravene s. 61(1)(b), but that subsection clearly authorized the employer to act as it did.

By enacting s. 61(1)(b), the Legislature has made crystal clear its intention to permit an employer to terminate the employment of an employee regardless of whether the employment contract contains a provision requiring the employer to continue to make post-dismissal benefit plan contributions so long as the employer in fact makes those post-dismissal payments (and, of course, also complies with the requirements of 61(1)(a)).

Stevens adopted the Wright decision and made what we view as the same misinterpretation of ss. 5(1) and 61(1)(b). The following passages in Stevens might be noted:6

The failing of the particular termination provisions in the case before me is that they attempt to "draw the circle" of employee rights and entitlements on termination with an all-encompassing specificity that results in the effective and impermissible exclusion and denial of the benefit continuation rights mandated by the legislation. That is what puts [the clause] offside, and requires the "termination provision package" of [the clause] to be regarded as null and void, in accordance with the policy considerations and directive outlined by the Supreme Court of Canada in Machtinger.

In particular, employers should be provided with incentive to ensure that their employment contracts comply with all aspects of the employment standards legislation, including provision of adequate notice (or pay in lieu thereof) and mandated benefit continuation. As emphasize by Justice Low in Wright, supra, an employer's voluntary provision of additional benefits after the fact does not alter the reality that the employment contract drafted by the employer is contrary to law.

Were it not for the clear and unambiguous language of ss. 60(1)(c) and 61(1)(b), there might be merit to those reasons. As indicated above, however, those subsections plainly require only that benefit plan contributions actually be continued after the termination of employment, not that the contract contain a provision requiring that they be continued.

Section 5(1) renders void any contracting out or waiver of a statutory employment standard. There was, however, no contracting out or waiver of the employment standard relating to benefit plan contributions. The contract in question did not prohibit the employer from voluntarily continuing to make benefit plan contributions in a post-dismissal period. The fact that they were continued not because the employer was contractually obligated to continue making them, but rather because the employer voluntarily did so, was not a breach of the employment standard, nor did it involve a contracting out or waiver of the standard.

In the absence of a contracting out or waiver of the employer's ability to make benefit plan contributions after dismissal, s. 5(1) simply did not apply. Had the employer failed to make those payments, it would have been in breach of the employment standard in s. 60(1)(c) and the employee would then have had a remedy for breach of that standard. Even in that situation, s. 5(1) would have been irrelevant, because the issue would not have involved an attempt to contract out of or waive a statutory employment standard, but rather the breach of a standard.

The employer's conduct was not, as stated in Stevens, "contrary to law". The foundation for the decisions in both Wright and Stevens was, in our view, incorrect.

Having said all of the above, there may be a basis that is set out in the Machtinger decision for a finding similar to that made in Wright and Stevens. While Machtinger did not consider the issue that is the subject of this paper, the court listed several policy considerations that are relevant to termination clauses generally. One of those is that "an interpretation of the Act which encourages employers to comply with the minimum requirements of the Act, and so extends its protections to as many employees as possible, is to be favoured over one that does not."

These policy considerations were elaborated upon in Ceccol,8 where the Ontario Court of Appeal recognized the importance of "the role [that] work plays in a person's life, the imbalance in many employer-employee relationships and the desirability of interpreting legislation and the common law to provide a measure of protection to vulnerable employees." These are important and legitimate policy considerations, but they should not be used to punish employers who comply with the Act in good faith, but who fail to stipulate benefits within a termination clause despite no statutory requirement to that effect.

The difficulty for employers is that Wright and Stevens have set a dangerous precedent that threatens to invalidate existing employment contracts. Any employer who seeks to honour these decisions cannot simply ask employees to sign revised contracts with new termination clauses. Instead, the employer will have to provide fresh consideration in the form of increased salary, security of employment or other consideration, in order to support the addition of a new or revised termination clause. Such measures would surely prove costly, onerous and, frankly, unfair, for many employers, who we argue, have not breached any statutory standards.


1 In Ontario, the relevant statute is the Employment Standards Act, 2000, S.O. 2000, c. 41.
2 Machtinger v HOJ Industries Ltd. [1992] 1 S.C.R. 986.
3 Machtinger, at paras. 26-28.
4 Wright v The Young and Rubicam Group of Companies (Wunderman) 2011 ONSC 4720 and Stevens v Sifton Properties Ltd. 2012 ONSC 5508. It should be noted that, as discussed below, there was an issue in Wright regarding the compliance of the termination clause with the minimum statutory notice period.
5 Wright, at paras. 16-17.
6 Stevens, at paras. 64-65.
7 Machtinger, at para. 32.
8 Ceccol v. Ontario Gymnastic Federation (2001), 55 O.R. (3d) 614 (Ont. C.A.) at para 49.

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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