In Bertsch v. Datastealth Inc., the Ontario Court of Appeal confirmed that a properly drafted termination clause will be enforced. While termination clauses will still be heavily scrutinized by Ontario courts, Bertsch confirms that they remain crucial to limiting employees' entitlements.
Background:
The appellant, Mr. Bertsch, was hired by the respondent, Datastealth Inc., as Vice-President. His annual salary was $300,000. After 8.5 months of work, he was dismissed and received four weeks' pay in lieu of notice. The termination clause in his employment agreement explicitly stated three things that were central to the dispute:
- Mr. Bertsch could be terminated "with or without cause."
- In either situation, Mr. Bertsch was entitled to only the "minimum payments and entitlements" under the Employment Standards Act, 2000 (ESA).
- If the termination clause were found to be unenforceable, Mr. Bertsch would not receive less than the ESA minimums.
Notably, the four weeks' pay provided by Datastealth Inc. was higher that what he would have been entitled to under s.57 of the ESA.
The Court of Appeal reiterated that termination clauses in employment contracts must comply with the ESA in wording and effect; if they do not, then they are not enforceable. In Bertsch, the plaintiff employee alleged that because his termination clause could be read to mean that he could be terminated for "cause" without notice or pay in lieu of notice. However, the court disagreed.,
Citing Amberber v IBM Canada Ltd, the Court of Appeal noted that true ambiguity in a termination clause's interpretation will be resolved in favour of the employee. However, a finding of ambiguity requires more than just competing interpretations. The Court of Appeal wrote: "the issue is not whether an ordinary person might arrive at an incorrect interpretation of the termination provisions of the employment agreement, but how the agreement can be reasonably interpreted." In this case, the clause's use of legal terminology did not mean that it could not be reasonably interpreted.
Takeaways for Employers:
Bertsch is confirmation of the importance of having an enforceable termination clause. Termination clauses must be clearly worded and explicitly comply with the requirements of the ESA. Ontario employers have known this for some time. Nevertheless, Bertsch signals that the Court of Appeal remains willing to enforce a termination clause where appropriate.
The decision on appeal in Bertsch was made on Datastealth's successful motion under Rule 21 of Ontario's Rules of Civil Procedure to strike and dismiss Mr. Bertsch's claim for no tenable cause of action. While summary judgment is frequently used to resolve wrongful dismissal actions, the successful use of Rule 21 – motions under which are more expeditious than summary judgment – to strike Mr. Bertsch's claim confirms that employers should strongly consider it where they are confident that their termination clause is enforceable.
The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.
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