Summary
Employers in British Columbia can recline their seats a little. A recent British Columbia Court of Appeal decision found enforceable a termination clause that limited termination entitlements by simply referencing the relevant statutory termination entitlements. The decision, Egan v. Harbour Air Seaplanes LLP, 2024 BCCA 222 ("Egan"), confirms that courts in BC will take a practical, common-sense approach to interpreting termination clauses.
Background
Gerald Egan's employment as Vice President of Maintenance Operations at Harbour Air Seaplanes LLP ("Harbour Air") was terminated after nearly three years of service. As a federally regulated employer, the employment relationship was subject to the Canada Labour Code (the "Code"). The employment contract between the parties included the following termination clause:1
"The Harbour Air Group may terminate your employment at any time without cause so long as it provides appropriate notice and severance in accordance with the requirements of the Canada Labour Code."
(the "Termination Clause").
Harbour Air provided Mr. Egan with two weeks of salary in lieu of notice and five days of severance pay, which, at the time, was in accordance with the Code and the Termination Clause.2
Mr. Egan brought an action for wrongful dismissal seeking common law reasonable notice. His claim was dismissed at summary trial on the basis that the Termination Clause precluded a claim for common law reasonable notice. On appeal, Mr. Egan argued that the Termination Clause was unenforceable because it was insufficient to rebut his entitlement to common law reason notice and it excluded benefits that were required to be paid to him pursuant to the Code.
The primary issue before the Court of Appeal was whether the Termination Clause, which (i) referenced the termination requirements under the Code as opposed to enumerating those requirements, and (ii) did not expressly limit the operation of common law reasonable notice, was sufficient to rebut the presumption of common law reasonable notice.
Ruling of the Court of Appeal
The Court of Appeal upheld the summary trial decision. The Court found that, despite errors in the summary trial judge's contractual analysis, the conclusion was correct. The Termination Clause was enforceable, and Mr. Egan was not entitled to common law reasonable notice.
Under the common law, employees whose employment is terminated without cause are presumptively entitled to reasonable notice of termination. This presumption can be rebutted by a contract that clearly and unambiguously specifies some other period of notice, whether expressly or impliedly, provided it meets or exceeds the minimum termination entitlements in the applicable employment standards legislation.3
The Court rejected Mr. Egan's argument that the Termination Clause did not explicitly cap his notice entitlements or expressly displace the common law, and therefore did not displace his entitlement to reasonable notice. The Court found that the intent to limit his termination entitlements to those in the Code was clear, despite the employment contract not stating so explicitly. When Mr. Egan entered into the contract, he knew that his entitlements on termination were to be governed by the Code, not the common law.4
The Court rejected Mr. Egan's further argument, that the Termination Clause breached the Code because it was silent on bonuses and other benefits upon termination, possibly allowing Harbour Air to only pay him only his base salary during the notice period, excluding other potential entitlements to bonuses and other benefits. The Court of Appeal refused to interpret the silence of the employment agreement on these issues as permitting Harbour Air to contract out of its statutory obligations.5
Takeaways
Egan confirms that in British Columbia, termination clauses incorporating reference to legislation may be sufficient to rebut the common law presumption of reasonable notice. This case is particularly significant since plaintiffs' lawyers seeking more generous settlements for former employees have long argued that the common law continues to apply to termination provisions that do not explicitly oust its operation.
However, any claim alleging that a termination clause is unenforceable will turn on the interpretation of the specific clause and language at issue. While Egan provides that courts in British Columbia will use a commonsense approach to determine the intentions of the parties, employers should always take care in drafting their termination provisions to ensure that the notice period is clearly and unambiguously specified.
If you have any questions about this decision or need assistance, please reach out to any member of our Labour & Employment Group.
*A special thanks to Jieru Chi for her assistance with this blog post.
Footnotes
1 Egan v. Harbour Air Seaplanes LLP, 2024 BCCA 222 at para. 6.
2 At the relevant time, s. 230(1) of the Code required employers to provided employees who had been employed for three consecutive months with either two weeks written notice of termination or two weeks salary in lieu of notice. On February 1, 2024, s. 230(1) of the Code was amended to require notice, payment in lieu of notice, or a combination there of, based on the employee's length of employment.
3 Machtinger v. HOJ Industries Ltd., [1992] 1 S.C.R. 986 at 998.
4 Egan v. Harbour Air Seaplanes LLP, 2024 BCCA 222 at para. 45.
5 Egan v. Harbour Air Seaplanes LLP, 2024 BCCA 222 at para. 70.
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