Termination clauses underline benefits and other compensation as an employee's entitlement when an employer chooses to discontinue the employee's employment. These clauses usually provide either a fixed notice period during which these entitlements would be available to the employee, or a formula that determines the length of notice period based on the employee's length of service.
If an employer wishes to include a termination clause in an employment contract, the clause must offer the employee at least the minimum entitlements set out in the Employment Standards Act, 2000 (ESA) in order for the clause to be legally enforceable. However, case law about the enforceability of termination clauses is in a state of flux, with a mix of decisions in which the court has voided the clause (i.e. held it to be unenforceable) and upholding it (i.e. concluding that the clause is enforceable). A number of recent cases have found that termination clauses that fail to explicitly provide severance entitlements and benefits continuation were void and unenforceable. However, the latest decision at the Ontario Court of Appeal on this matter, Oudin v Centre Francophone de Toronto, casts another layer of fog on this matter.
In Oudin, the plaintiff started working for the defendant in 2000, and managed a magazine the defendant published. From 2000 to 2007, the plaintiff worked on consecutive one-year contracts. In 2007, the parties signed an indefinite term employment contract. The standard form contract outlined that the plaintiff was entitled to a notice period of either 15 days or what was prescribed by the ESA – even though at this point, the plaintiff's minimum notice and severance entitlements already exceeded 15 days. In 2013, the plaintiff was terminated due to declining magazine sales.
The plaintiff brought an action and argued that the termination clause was unenforceable, with one of the reasons being that the termination clause allowed for termination on only 15 days' notice despite the plaintiff's entitlement to significantly more at the time of signing.
The trial court found that the parties had no intention of contracting out of ESA's minimum standards and that the termination clause could reasonably be interpreted to provide for the employee's ESA entitlement, since the clause provided for the greater of the two options. The Ontario Court of Appeal found that the motion judge's decision was based in contractual interpretation, and capitalized on that perspective, concluding that the motion judge's interpretation of contract is entitled to deference.
With the plaintiff's application for leave to appeal pending, we can hope that the Supreme Court of Canada can provide better clarity to the enforceability of termination clauses.
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