At CCP, we are big believers in the value of a well-written
employment agreement to reduce liability at the point of a
dismissal on a non-cause basis. The Divisional
Court's recent decision in Garreton v. Complete Innovations
Inc. is an important reminder of the importance
of ensuring termination clauses comply with minimum employment
standards legislation, whether or not an employee would be entitled
to those statutory minimums at the time of their dismissal.
In Garreton, the employee
signed an employment agreement at the commencement of employment
that allowed Complete Innovations to dismiss on a without cause
basis by providing the minimum notice requirements set out in the
Employment Standards Act, 2000, as well as group benefit
continuation during the statutory notice period. The contract
did not include the employee's right to statutory severance
pay, which she would have been entitled to after five (5) years of
service since Complete Innovations was also a severance employer in
the circumstances. Ms. Garreton was dismissed for cause and
as an alternative argument her employer asserted that if there was
no legal cause to dismiss, Ms. Garreton was only entitled to two
(2) weeks' statutory notice pursuant to her employment
agreement. Ms. Garreton asserted that the termination
provision was void as it "potentially" violated her
statutory rights by not providing for severance pay entitlement
even though at the time of dismissal she would not have been
entitled to severance pay with less than five (5) years'
The Small Claims Court judge did
not address the employer's alternate argument and found that
since the company did not have cause Ms. Garreton was entitled to
five (5) months' salary for wrongful dismissal
damages. On appeal, while the Divisional Court agreed
with the employer that the judge ought to have considered the issue
of the enforceability of the termination provision, the Divisional
Court found that the clause was unenforceable because it did not
include any right to the statutory severance
entitlements. The Court concluded that the termination
provision provided less than an employee's statutory
entitlements in circumstances where the employee had five
years' of service. The Court went on, citing the Supreme
Court of Canada's decision in Machtinger v. HOJ Industries
Ltd., to find that it was enough that the clause
"potentially" violated Ms. Garreton's statutory
entitlements to render it void in the circumstances.
The Divisional Court specifically rejected the position advanced in
another lower court decision, John A. Ford & Associates
Inc. v. Keegan where the judge held that the termination
clause "must conform to provincial employment standard
legislation for the particular employee, in the particular
circumstances" in upholding the termination provision in that
case. The Divisional Court in Garreton ruled
that the contract must be viewed at the time it is entered into and
that a "potential violation in the future is sufficient"
to void the termination provisions.
But for the omission of the
statutory severance language, the termination clause would likely
have been enforceable, and instead of paying five (5) months'
salary the employer would have only been obligated to pay two (2)
weeks. This case underscores the importance of drafting
language that ensures compliance with the provincial employment
standards legislation in all cases and anticipating possible
changes once the employment agreement is signed. For example,
if the employer was not required to pay severance at the time of
hiring because it did not have an annual payroll of 2.5million
dollars but subsequently grew to pass the monetary payroll trigger,
the contract would still have to have been drafted to contemplate
that potential additional liability.
Unfortunately, unlike horseshoes and hand grenades, coming
"close" to compliance with statutory obligations will not
be enough to save a termination clause. For this reason, it
is critical to always get expert legal advice on the drafting of
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