Canada: Tie Goes To The Runner: Termination Language Almost Upheld, But Potential Ambiguous Interpretation Leads Court To Award Reasonable Notice

Last Updated: August 9 2019
Article by Kelsey Orth

In this space, you have seen numerous articles reporting on the latest decisions interpreting contracts of employment: employees challenging anything and everything in the effort to be awarded common-law reasonable notice, with employers defending their language and seeking to hold to basic contract principles.  In all cases, the drafting of the employment agreement is heavily scrutinized, and we speak often of the importance of drafting.

In the recent case of Alarashi v. BBBST CV-18-608514, a Summary Judgment Motion argued with aplomb by our own Angela Wiggins, we saw both sides of this coin.  Although the employer had an employment agreement in place at the time it hired the employee and sought to rely on the termination clause when dismissing the employee years later, the employee nevertheless challenged the termination clause on 3 separate grounds, all related to the Employment Standards Act, 2000 ("ESA"):

  1. The language regarding benefits was contrary to the ESA;
  2. The language regarding "just cause termination" was in violation of the ESA; and
  3. The language relating to "notice or severance" was ambiguous and contrary to the ESA.

The good news from the decision is that it did not accept two of the three potential arguments to strike the termination clause, and it is most interesting to note at paragraph 27 that Justice Sossin works on reconciling the differing approaches in 2 fairly recent well-known Court of Appeal cases ( Oudin and Wood) and comes to a conclusion that largely favours employers – drafting language should be interpreted so as to benefit the employee asserting termination rights but that the court should not impute ambiguity where the intention of the parties is clear – we will come back to this point.

With respect to the argument that the language regarding benefit continuation during any notice period was contrary to the ESA, Justice Sossin does distinguish between a clause referencing or implying the ability of the insurer to deny benefits to someone whose employment has been terminated (which would invalidate the language) and a clause that speaks to the "availability of benefits", acknowledging the reality that the employer does not control what insurers offer as part of a group benefits plan.  This is a helpful statement of the law, in recognizing that a reference to the availability of benefits will not invalidate the termination clause.

It is also positive that Justice Sossin did not accept the plaintiff's argument with respect to just cause termination violating the ESA, as this is something we see often as well from plaintiffs: the suggestion that because the common-law standard of "just cause" is different than the ESA requirement of "willful misconduct", any termination language referencing the former is in contradiction of the ESA.  At paragraph 39 Justice Sossin found that based on the intent of the parties to comply with the ESA that the termination language was interpreted not to contract out of the ESA despite references to breaches of the HR manual.

For the "severance or termination pay" argument, Justice Sossin took the approach that he needed to determine if the clause excluded severance pay if termination was provided.  While Justice Sossin did find that the provision could be read to set out the two entitlements under the ESA, that is, unfortunately, not the test for a valid termination clause; as the clause can also be read in a way that is incompatible with the ESA – i.e. the plaintiff may not be entitled to both severance and termination – the benefit of the interpretation must go to the employee.  This is a foundational principle of contract interpretation, known as contra preferentum: the requirement to interpret any ambiguity in language in favour of the non-drafting (and therefore theoretically disadvantaged) party to that agreement. 

Here, the ambiguity in the language that was included in the termination clause was that instead of saying "notice (or payment in lieu of notice) and/or severance pay," the clause only said "notice... or severance pay."  Justice Sossin reasoned that there is a plausible interpretation where an employee could only be paid one of termination or severance even if entitled to both under the ESA, which in his view invalidates the clause.

As we can see, while this decision did bolster some employer arguments with respect to some of the common challenges to employment agreement termination clauses, it still came down to the specific drafting: even a subtle difference can be damaging, notwithstanding all other elements being present.

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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