By Katie Clayton and Farrah Sunderani
If you include a termination benefit in a Canadian employment agreement, it is important to be precise. As discussed in previous Northern Exposure entries, employers in Canada must provide notice or pay in lieu of notice when terminating an employee without cause. This minimum requirement is legislated in employment laws across the country. But Canadian courts often award higher amounts, as a result of more generous judicial precedents.
Canadian courts have frequently visited the topic of an employer’s ability to limit the amount of notice they must provide to that required by statute. Can you prevent a court from awarding more? You can’t pay less than the statutory amount. The Supreme Court of Canada has ruled that any contract clause that purports to provide less is void and unenforceable. It is, however, possible to limit the notice of termination to the statutory minimum.
But note: Where an employer attempts to include such a limit in an employment agreement, the clause must be clearly worded and unambiguous.
It is not enough for a termination clause to state that an employee’s notice entitlement equals the amount set out in the employment standards legislation. This is because most statutes preserve an employee’s right to claim for his or her common law entitlement. For instance, the Alberta Employment Standards Code states in section 3(1)(a): “Nothing in this Act affects . . . any civil remedy of an employee or employer.”
Similarly, the Ontario Employment Standards Act states in section 8: ” . . . no civil remedy of an employee against his or her employer is affected by this Act.” So stating that an employee’s entitlement is that set out in the statute will not limit an employer’s exposure at all; in fact, that would preserve the employee’s right to pursue a civil claim in court.
The 2007 Alberta Court of Appeal case of Kosowan v. Concept Electric Ltd. came to this very conclusion. It found that a mere reference to employment standards laws does not confine the employee to the specific notice amounts under the statute but rather preserves the employee’s ability to pursue a court action. An employee will be confined only to the statutory notice period where the termination clause in the contract specifically references the applicable sections of the statute.
However, caution must still be exercised when referencing specific statutory clauses, since the statute may be changed. That could make the termination clause ineffective. One can get around that by explicitly recognizing the possibility of future amendments to the statutory requirement in question.
Finally, if these limitations are to be effective, they must be specifically brought to the employee’s attention. They should be acknowledged in some way by the employee prior to or when signing the agreement.