To the chagrin of many employers in Canada, the courts have made the drafting and enforcement of termination provisions in an employment contract challenging. In recent years, case law in Ontario has been particularly harsh in striking down termination provisions that may be contrary to the statutory provisions of the Ontario Employment Standards Act, 2000 (ESA) in some circumstances but not others (e.g., entitlements meet the requirements for the first five years of employment but not thereafter).
A recent case in the Ontario Superior Court of Justice, Ford v. Keegan, 2014 ONSC 4989, provides some indication that the court in Ontario has not fully settled on when striking a termination clause is appropriate. As opposed to the treatment of termination clauses in other cases, the court in this case indicated that a termination clause, so long as it meets the ESA minimums at the time an employee is dismissed, should be enforced.
All provinces, territories, and the federal jurisdiction have legislation that sets out the minimum notice of termination (and severance pay if applicable) owed to an employee in the event of a termination of employment without cause. Ontario’s legislation also states that benefit payments must be made for at least the required notice period. The notice period and other statutory entitlements for termination of employment are tied to years of service. Generally speaking, as an employee’s tenure increases, so does the notice period.
Employers cannot contract out of these minimum statutory provisions. In other words, a provision of a contract that is contrary to these minimums can be unenforceable.
In all jurisdictions in Canada except for Quebec, where an employee’s employment agreement lacks an enforceable termination provision, employees are entitled to common law reasonable notice. Common law reasonable notice is usually greater than the statutory minimum notice periods and is generally awarded in terms of months.
The issue of statutory minimum entitlements becomes difficult when termination provisions may meet or provide more than the required minimums at one point in time but fail to meet the minimums at another point. For example, a termination provision may provide the correct amount of notice for the first six years of employment but fail to provide the correct amount if the employee were to work more than six years.
Recent employee plaintiffs have been able to void similar termination clauses and receive common law notice. In these cases, courts have held that these termination clauses were invalid when signed and unenforceable as they did not meet statutory entitlements in all service scenarios.
For example, the Ontario Superior Court of Justice held similarly in the 2011 case of Wright v. Young and the Rubicam Group of Companies (Wunderman), 2011 ONSC 4720. In her decision, Madam Justice Wailan Low comments:
There is … no particular difficulty in fashioning a termination clause that does not violate either the minimum standards imposed by the Employment Standards Act or the prohibition against waiving statutory minimum requirements and there is no compelling reason to uphold a termination clause which the draftsman may reasonably be understood to have known was not enforceable either at all or under certain circumstances.
Other recent case law has applied the same standard in striking down termination provisions and applying common law notice instead.
New approach to enforcing the parties’ contract?
In Ford, the Ontario Superior Court appears to have rethought this treatment of termination clauses. In the particular case, FK was a dependent contractor for a training business (a dependent contractor is treated at law as an employee for notice purposes).
With the help of a lawyer, FK negotiated a contract that provided that either party could terminate the contract on providing 30 days’ notice. The company gave FK 30 days’ notice that it was ending the contract after three years.
FK brought an action against the company claiming, among other things, that the termination clause was unenforceable. Despite the fact that 30 days’ notice was more than the notice period provided for under the ESA at the time of termination (three weeks), FK claimed that had he worked for a longer period, the notice period (30 days) would have been less than his ESA entitlement.
The court did not accept this argument and expressly disagreed that a termination clause should be found unenforceable if it, from a point in time and practical perspective, provided enough notice of termination. Put another way, the court analyzed whether at the time the notice of termination was given, the notice in the termination provision met the statutory minimum entitlement.
The court suggested that the plaintiff’s approach “would require the notice period in a contract of employment for a new employee to meet the minimum notice requirements for an employee of the longest conceivable years of service. That goes beyond what is necessary to provide an employee with the notice period prescribed by provincial legislation and restricts to an unreasonable extent the parties’ right to negotiate their own agreement.”
This case may provide some consolation for employers defending termination clauses that do not meet statutory requirements in all service scenarios. It may indicate that there is some disagreement within the court on this issue and may signal an opportunity for more definitive direction from an appellate court.
However, employers in Canada should be aware that this analysis is a departure from this trend and an improperly drafted termination clause may still put an employer at risk. In addition, the analysis in this case was limited to the statutory notice of termination provision and did not address other entitlements (such as severance or benefits continuation) and their impact on the enforceability of termination provisions.
Though this decision is a welcome nod to the ability of employers and employees to agree on a package of contract language and benefits, including termination rights, employers should be hesitant to rely on this case in order to avoid accounting for different service scenarios in their termination clauses.