Canada: On Strict Terms: Wording Of Termination Provision Not What The Employer Does Determines Enforceability

Highlighting the importance of using precise language in termination provisions of employment contracts, the Ontario Court of Appeal in Wood v Fred Deeley Imports Ltd., 2017 ONCA 158 [Wood] recently held that a termination provision that failed to expressly provide for benefit continuation during the notice period and statutory severance pay was unenforceable. The Court of Appeal's decision in Wood affirms that termination provisions must be interpreted by their strict language alone, and implementing a termination in accordance with the Employment Standards Act, 2000 (ESA) cannot save an otherwise unenforceable provision.

Background

The plaintiff, Ms. Wood, worked for the employer from April 2007 until April 2015, at which time the employer notified all of its employees, including Ms. Wood, that due to a sale of its business, their employment would end effective August 2015. Ms. Wood was provided with 13 weeks' working notice, a lump sum payment equal to 8 weeks' pay, and benefit continuation for the duration of the notice period. 

The working notice and lump sum payment provided to Ms. Wood totalled 21 weeks and exceeded her entitlements to approximately 16 weeks as specified in her employment agreement, which stated:

[The Company] is entitled to terminate your employment at any time without cause by providing you with 2 weeks' notice of termination or pay in lieu thereof for each completed or partial year of employment with the Company. If the Company terminates your employment without cause, the Company shall not be obliged to make any payments to you other than those provided for in this paragraph, except for any amounts which may be due and remaining unpaid at the time of termination of your employment. The payments and notice provided for in this paragraph are inclusive of your entitlements to notice, pay in lieu of notice and severance pay pursuant to the Employment Standards Act, 2000.

The Summary Judgment Decision

Ms. Wood moved for summary judgment, challenging the enforceability of the employment agreement on the basis of two grounds.  First, she argued that the entire agreement was invalid for lack of consideration because she had not signed the employment agreement until a day or so into her employment. Second, Ms. Wood argued that the termination provision failed to expressly reference her entitlement to continued benefit contributions during the notice period specified therein. The motion judge dismissed both lines of argument, noting that the employer had continued Ms. Wood's benefit contributions throughout the notice period, but fixed Ms. Wood's reasonable notice entitlement at nine months in the event that his findings on either ground were wrong. 

The Court of Appeal Decision

The Court of Appeal upheld the motion judge's finding that there was insufficient consideration for the employment agreement and also declined to interfere with the motions judge's finding regarding the appropriate length of the notice period. However,  the Court of Appeal overturned the motion judge's finding that the termination provision's failure to expressly reference Ms. Wood's benefit entitlements was not fatal to the provision as a whole, distinguishing the Ontario Superior Court of Justice's earlier decision in Roden v. Toronto Humane Society, 2005 ONCA 33578 [Roden].

The termination provision in Wood expressly excluded any obligations on the part of the employer "other than those provided for" in the express language of the provision. In light of the exclusionary language, the Court of Appeal found that, unlike in Roden, it was not possible to infer that the termination provision had intended to include benefit continuation during the notice period.  As such, the Court of Appeal concluded that the termination provision contravened the ESA and it was unenforceable. 

The fact that the employer had actually continued the employee's benefits during the working notice period in Wood was not sufficient to correct an otherwise unenforceable contractual provision. The Court of Appeal held that the enforceability of a termination provision "depends only on the wording of the clause itself, and not what the employer may have done on termination".

Finally, the Court of Appeal concluded that the termination provision was unenforceable on a second basis, having failed to clearly satisfy the employer's obligation to pay severance pay.  Specifically, the employer could meet its obligations under the clause in three ways, only one of which would have complied with the employer's severance obligations under the ESA.

Key Takeaways for Employers

  1. Employment contracts must be drafted in clear terms: As noted in previous blog posts, contractual clarity is paramount. Precise drafting reduces the risk of future litigation. In Wood, the Court of Appeal affirmed that termination provisions will be considered in light of both their actual and potential application and that the mere possibility of a contravention of the ESA is sufficient to render the provision unenforceable. The defects that arose in Wood could have been avoided by clearly particularizing the employee's entitlements to notice or pay in lieu, severance pay, vacation pay and benefit continuance within the termination provision.
  2. "Checked for silence... taxed for speech": Exclusionary language in a termination
    provision can make it unenforceable:
    The decision in Wood clarifies the effect of exclusionary language.  In both Wright v Young and Rubicam Group of Cos. (Wunderman), 2011 ONSC 4720 and Stevens v Sifton Properties Ltd., 2012 ONSC 5508, the termination provisions were held to be unenforceable despite the fact that the employers had complied with their ESA obligations post-termination on the basis that the provisions contained clear exclusionary language, rather than simply "remaining silent" with respect to benefit entitlements. The Court of Appeal's decision in Wood differentiates its earlier decision in Roden, where a termination provision that was silent with respect to benefit entitlements but did not contain exclusionary language was upheld. The takeaway for employers is that if exclusionary language is used, it is important to include a saving provision confirming the employee will not receive less than his or her minimum statutory entitlements.
  3. Not too little, still too late: Complying with ESA obligations will not cure a defective contract provision: If a termination provision expressly excludes benefit or other entitlements during the notice period, providing the benefit in question post-termination will not serve to otherwise cure or uphold the remainder of the termination provision. Enforceability is entirely dependent on the express language of the provision.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Amanda C. McLachlan
Joseph Blinick
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.