Canada: Challenging A Termination Clause In Small Claims Court

A 2019 decision of the Ottawa Small Claims Court serves as a caution for employers and may encourage employees to fight wrongful dismissals. When an employee is terminated without cause, (s)he may be entitled to severance pay in lieu of notice of termination. The amount will depend on the length of time the employee has worked for the employer. If the sum of severance pay in dispute is equal to or less than $35,000, the dispute can be brought in Small Claims Courts. Small Claims Court proceedings are somewhat simpler and can lead to a quicker resolution of the matter. The parties in a Small Claims Court matter have no right to pre-trial examinations for discovery and hence proceed to trial relatively quickly (unless of course there is a raging pandemic).

A further benefit of Small Claims Court actions is that the parties may represent themselves if they so wish, which will reduce litigation costs. Caution is advised, however, as the law around termination clauses is quite complex and can be confusing.

Given this complexity, many termination clauses are drafted in a way that renders them unenforceable. That was the case in the above-mentioned decision. If an employer wishes to limit its exposure to wrongful dismissal damages, it is a good idea to consult an employment lawyer and to have the employment contract reviewed. 

An employment contract may eliminate a common law wrongful dismissal claim if (1) the agreement complies with the minimum standards of the Employment Standards Act  (ESA) and (2) is clear and unambiguous and (3) ideally states that the severance pay offered is intended to extinguish all common law remedies.

The Termination Clause

In this case, the termination clause read as follows:

Your employment may be terminated for cause at any time without notice or payment in lieu thereof.  Your employment may be terminated for any other reason by the company upon delivery of one week's notice per year of Espial service or payment in lieu thereof, or such other amount as is required under the Employment Standards Act, whichever is greater.

The intention was to limit the employer's right to claim severance pay under the common law and to grant him or her the entitlements under the ESA.

This wording failed to have this effect, however. First, the clause did not provide for the continuation of benefits as is required under the ESA. This is a violation of the ESA, which sets out minimum entitlements for employees that cannot be contracted out of. A violation of the ESA  renders the contract void.

The second problem with the termination clause was its ambiguity. The clause could be interpreted to lack reference to severance pay, another entitlement under the ESA.  If a termination clause is ambiguous, meaning that the employee upon signing the contract cannot know what his or her entitlement will be upon termination, the clause is void. 

Thirdly, an argument was advanced by the employee that the contract did not make it clear that the employer intended to oust the employee's common law entitlements upon termination. The court found that there is no obligation to include a "warning sign" in the termination clause, but that the legal standard is whether the clause is sufficiently clear. Out of an abundance of caution, it may be advisable to explicitly state in the employment contract that the common law remedies are eliminated.

The claim succeeded and $25,000 was awarded as damages. The plaintiff had been employed slightly less than three years.

Conclusion

Given the complexity of the law regarding termination clauses, it is advisable for employers to ask a lawyer to review their employment contracts regularly to ensure their enforceability. The law is evolving and even when a clause was enforceable at some point in time, new case law may have rendered it unenforceable.

For employees who believe they have been wrongfully dismissed, the Small Claims Court may provide a good forum to obtain relatively quick relief. While they can represent themselves in front of Small Claims Courts, a lawyer's advice can be indispensable in determining the prospects and the risk involved in the litigation.

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.