As our regular readers are well aware, 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").
One way in which employers often seek to ensure their termination clauses hold up in court is to include a "fail-safe provision" that guarantees an employee will receive her or his statutory minimums, even if the termination clause is ultimately found to provide for less. The recent Ontario Court of Appeal decision in Rossman v Canadian Solar Inc., 2019 ONCA 992, is a cautionary tale for employers seeking to rely on such fail-safe provisions to correct an ESA violation elsewhere in the employment agreement.
In this case the termination clause at issue read, in part, as follows:
In the event the minimum statutory requirements as at the date of termination provide for any greater right or benefit than that provided in this agreement, such statutory requirements will replace the notice or payments in lieu of notice contemplated under this agreement.
Benefits shall cease 4 weeks from the written notice.
At trial, the motions judge found that termination clause was unenforceable, as the benefits language would violate the ESA after five years of employment. The employer's appeal was dismissed.
The Court of Appeal held that the termination clause contained genuine ambiguity, and the ambiguity was not resolved by the fail-safe provision.
At common law, there is a longstanding presumption that an employer cannot terminate employment without reasonable notice. This presumption is rebutted if the contract of employment clearly specifies some other period of notice. As we know, in Ontario employers and employees are free to contractually agree to any notice period, provided the agreement respects the ESA minimum standards. As a general rule, if a termination cause is in conflict with the ESA, the entire clause void.
Counsel for the employer relied on Amberber v IBM Canada Ltd., 2018 ONCA 571, a recent case in which the Court of Appeal upheld a "virtually identical" fail-safe provision. The court noted, however, that the key difference between the two was the "terse and final sentence of the Termination Clause" relating to benefits which does not express an intention to conform to the ESA. Accordingly, the fail-safe could not "reconcile a conclusory provision that is in direct conflict with the ESA from the outset."
What does this mean for employers? As a best practice, we would suggest that employers ensure that 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 ESA.
The current state of the law on the enforceability of termination provisions is "clear as mud" and we would all employers who haven't had their contract language reviewed in the last year to have their contracts reviewed for legal compliance.
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