In the case of Andros v. Colliers Macaulay Nicolls Inc., 2019 ONCA 679, the interpretation of the employment contract governing the employee-employer relationship, was at issue. The specific contentions arose from the controversial termination clause contained in the contract.
The Plaintiff employee was dismissed without cause by the defendant employer. At the time of termination, the employee had worked for the employer for two periods, with the second period lasting eight-years, during which he was promoted from a senior associate to a managing director.
The employment contract contained 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 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."
The employee argued that the termination provision was unenforceable because it represented an attempt by the employer to contract out of enumerated employment standards provisions provided for under the Employment Standards Act, 2000 ("ESA"), which is not permitted.
The trial judge found that the termination provision in the employment contract potentially reduced the employee's entitlements upon termination to something less than his minimum entitlement pursuant to the ESA.
The trial judge found that at best, the termination provision in the employment contract was unclear or ambiguous as to whether the employee would have been entitled to all statutory ESA entitlements if clause 4(a) or 4(b) applied.
The trial judge found that the termination provision was unclear and ineffective in rebutting the presumption of reasonable notice of termination at common law and was therefore unenforceable.
The employer appealed the trial judge's decision.
On appeal, the employer's appeal was dismissed. The Ontario Court of Appeal held that the trial judge did not err in finding that the termination clause was unenforceable, and that the trial judge properly interpreted it by considering it in its entirety.
The Court of Appeal concluded that because the termination clause contained two distinct and separate parts, the lower court judge was correct to interpret the parts individually and correctly concluded that the clause was ambiguous. Clauses 4(a) and 4(b) purported to contract out of the ESA and did not incorporate the ESA by silence. It further followed that "if a termination clause purports to contract out of an employment standard without clearly substituting a greater benefit in its place, the entire termination clause is void".
The employee was therefore entitled to a common law notice period.
The decision in Andros reminds us that termination clauses must be drafted carefully to ensure their enforceability and that there is still uncertainty in the law as to whether a termination clause will be enforceable.
Employers should consult a lawyer prior to presenting an employee with an employment contract which contains a termination clause to obtain legal advice about its enforceability.
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.