Canada: Termination Clauses Revisited - ESA "Failsafe" Language May Not Be As Failsafe As You Think

Last Updated: September 23 2019
Article by Adrian D. Jakibchuk

If there is one thing employers want to get right in a written employment agreement, crafting an ironclad termination provision would typically be at the very top of any employer’s wish list. In most employment contracts, there is no more costly a mistake than to draft an unenforceable termination provision and end up invalidating the entire clause.

Given how readily the courts tend to pounce on any errors, irregularities or ambiguities in termination provisions and rely on them to strike the entire clause, prudent employers will often resort to what are sometimes informally referred to as Employment Standards Act, 2000 (ESA) “failsafe” provisions. Such provisions can take many forms, but practically speaking, are all intended to set as a “floor” for any termination provision an employee’s minimum entitlements under the ESA. The typical ESA “failsafe” clause is tacked onto the end of a termination provision and states that, no matter what happens, the terminated employee will receive their ESA minimum entitlements.

One such termination clause with an ESA “failsafe” was the focal point of the Ontario Court of Appeal’s recent decision in Andros v. Colliers Macaulay Nicolls Inc. (Andros). Unlike a standard ESA “failsafe” clause, however, the clause in question in Andros simply made the ESA minimums one of several possible contractual entitlements. The specific termination provision in Mr. Andros’ employment contract read as follows:

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 [referred to in the decision as the “first clause”] 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.

b.Payment in lieu of notice in the amount equivalent of two (2) months Base Salary. [Emphasis added]

Upon the termination of his employment, Mr. Andros received his entitlements under the ESA – namely, a lump sum payment in lieu of notice of termination equal to eight weeks of salary, coverage for all benefits during that notice period, and a lump-sum severance payment of approximately 12 weeks of salary. The employer took the position that Mr. Andros’ ESA entitlement was greater than either of the options in clauses 4a or 4b and, as such, that was the extent of Mr. Andros’ contractual entitlement.

Mr. Andros argued that he was entitled to more because, in his view, the termination provision contravened the ESA and, as such, was not valid. Mr. Andros asserted the error arose from the provision’s failure to account for his entitlement to severance pay in clause 4a and its failure to account for benefits continuation in clause 4b.

When the matter first came before the Court on a summary judgment motion, the employer argued that the ESA “failsafe” provision built into the first clause of the termination language meant that there could be no interpretation of the termination provision that was not compliant with the ESA. The motion judge sided with Mr. Andros, however, and concluded that the ESA had indeed been contracted out of and, consequently, the entire termination clause was unenforceable. In the alternative, the motion judge held that, at its very best, the termination clause was unclear as to whether clauses 4a and 4b included statutorily-compliant severance and benefits and, as such, it would have been unenforceable on this basis as well. According to the motion judge, citing the recent Ontario Court of Appeal decision in Nemeth v. Hatch Ltd., “a high degree of clarity is required and any ambiguity will be resolved in favour of the employee.” In this case, Mr. Andros “would not have known, with certainty, when he signed the employment agreement whether he would be paid severance (if he were so entitled) in accordance with clause 4a, or whether he would be entitled to employee benefits in accordance with clause 4b.”

The employer appealed and argued before the Ontario Court of Appeal that:

a)The motions judge failed to interpret the clause as a whole;

b)She read ambiguity into clauses 4a and 4b where there was none; and 

c)She failed to appreciate that there was no need for a specific reference to statutory entitlements in clauses 4a and 4b for those entitlements to apply.

In particular, the employer argued that, because of the incorporation of the first clause - the “failsafe” provision - into the termination provision, the ESA minimums should properly be read into clauses 4a and 4b as well – thereby ensuring compliance with the ESA in any and every scenario. In other words, according to the employer, it was implied that severance and/or benefits would be provided under clauses 4a and 4b even though they were not explicitly referenced.

Ultimately, this argument failed. Consequently, the Court of Appeal upheld the motion judge’s determination that Mr. Andros was entitled to eight months’ notice at common law (rather than the approximately 4.5 months’ salary he initially received). Mr. Andros was also found, on appeal, to be entitled to a pro rata share of his bonus for the period of time he actually worked before his termination and the 8-month notice period.

What employers should take away from the Andros decision is that the bar remains quite high for employer-drafted termination provisions. It is clearly not enough for employers to draft any old termination provision (whether compliant with the ESA or not) with the expectation that, as long as they have language referencing the ESA minimums somewhere in there, they will be fine. As the Andros decision has demonstrated, even ESA “failsafe” language can fail if not drafted carefully – all the more reason seeking legal advice on a termination provision remains one of the best investments a company can make when it comes to staffing. 

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
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions