Canada: Yet Another Termination Clause "Bites The Dust" Says The Ontario Court Of Appeal – Where Do Employers Go From Here?

Last Updated: September 19 2019
Article by Susan Crawford

CCPartners has blogged on a number of court decisions over the last five years that have dealt with the enforceability of termination clauses, particularly those that seek to limit an employee’s entitlements to the minimums under the Employment Standards Act, 2000 (ESA”).   The recent Court of Appeal decision in Andros v. Colliers Macaulay Nicolls Inc. will no doubt frustrate both employers and their lawyers who try to help navigate them in the drafting of enforceable termination agreements.   Unfortunately, the sentiment coming out of the legal community is that this recent decision simply serves to further confuse and muddy the waters on when termination clauses will be enforced by the courts.

In this case the Court of Appeal was tasked with interpreting the following termination clause:

4. Term of Employment

The company may terminate the employment of the Managing Director by providing the Managing Director the greater of the Managing Director’s entitlement pursuant to the Ontario  Employment Standards Act [the “Failsafe Provision”] or, at the Company’s sole discretion, either of the following:

a. Two (2) months working notice, in which case the Managing Director will continue to perform all of his duties and his compensation and benefits will remain unchanged during the working notice period [clause “4(a)].  

b. Payment in lieu of notice in the amount equivalent of two (2) months Base Salary [clause “4(b)”].

On a motion for summary judgment the motions judge determined that the clause was unenforceable without considering whether there was any scenario where the employee could receive less than their statutory minimums – the test set out in previous appellate court decisions.   The motions judge determined that because  4(a) did not provide for statutory severance pay and 4(b) made no reference to benefit entitlement part of the termination clause was off-side the ESA and therefore unenforceable.  This, despite the language in the clause that it was the greater of the employee’s ESA entitlements or one of clause 4(a) and (b) that the employee would receive at the time of dismissal.  

The case was appealed to the Court of Appeal.  Counsel for the employer argued that the first paragraph of the termination provision was a “failsafe” provision which required the motions judge to “read-up” clauses 4(a) and (b) to be compliant with the ESA.    This argument was based on recent Court of Appeal authority providing for same.  The Court of Appeal disagreed and the effect of their decision was that a “failsafe” provision will never save a termination clause if any part of the clause is off side or potentially off-side the ESA.

Without engaging in an in-depth analysis of the recent appellate law on the enforceability of termination provisions, suffice it to say that, in this writer’s opinion, the current state of the law is “clear as mud”.   The different legal principles that have emerged from the Court of Appeal cry out for interpretation by the Supreme Court of Canada.   While recent attempts to seek Leave to Appeal have unfortunately not been successful perhaps it is time for our highest court to give much-needed guidance on this issue.

And while the intricacies of the legal principles may be of interest to those of us who practice exclusively in the area of labour and employment law, what do these decisions ultimately mean for employers?  We would suggest that the “best practice” for termination clauses is to not rely on silence for enforceability but rather to ensure that your termination clauses clearly and unambiguously provide employees with their minimum entitlements under the ESA and that those entitlements are set out specifically in your termination clause, even where you are providing greater notice/pay in lieu of notice than required under the Employment Standards Act, 2000.  And we would encourage all employers who haven’t had their contract language reviewed in the last year to contact lawyers who are experts in employment contract drafting, like CCPartners, to have their contracts reviewed for legal compliance.  

The team at CCPartners has extensive experience drafting enforceable termination language for employers seeking to either minimize their liability at the time of dismissal  or provide certainty to workplace parties where a without cause dismissal becomes necessary.  Whether it is a one page hiring letter with an ESA termination clause or a complicated executive contract dealing with bonus plans, profit sharing and other high-level compensation, CCPartners can assist in navigating employment contract drafting.   Click HERE for a list of our team members who can help you with your employment contract needs.

Click here to access CCPartners’ “Lawyers for Employers” podcasts on important workplace issues and developments in labour and employment law.

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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