Employment standards legislation in several provinces, including Ontario, renders void any provision of an employment agreement which seeks to waive or contract out of any right conferred under the statute. In 1992, the Supreme Court of Canada acknowledged that an employment agreement specifying the employee's rights when employment was terminated could displace the implied common law term requirement that "reasonable" notice (or pay in lieu thereof) be given to an employee dismissed without cause. The court found, however, that a termination clause in an Ontario employment agreement which was inconsistent with the minimum statutory standard was void, and that the common law requirement for "reasonable" notice filled that void. This has given rise to much litigation.
Having an enforceable termination clause in the employer's standard employment agreement is of great benefit. Even if the rights conferred exceed statutory minimums, the termination provisions provide certainty and avoid the transaction costs associated with litigation or threatened litigation. The jurisprudence is clear that a termination clause which seeks to take away statutory rights is void in most provinces. There has been a grey zone with respect to termination clauses which do not take away statutory rights, but which address some rights (e.g. notice/pay in lieu) without being explicit about associated categories of statutory rights (e.g. benefit continuation during the statutory notice period/severance pay). Our courts have consistently upheld these types of clauses as enforceable, but that is of limited value to the employers who must invest in significant legal fees and associated risks to achieve this result. Another grey zone arises when an employment agreement is potentially off-side the statutory requirements at some hypothetical future date, and this question remains unresolved in the jurisprudence.
Employers are well advised to review their standard employment agreements on a regular basis, in order to ensure that termination clauses avoid any of these grey zones. Employers can then be confident that there is little risk associated with threatened litigation and therefore avoid transaction and settlement costs.
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.
