A recent Ontario Court of Appeal decision offers further clarity for employers in drafting termination clauses in employment agreements, Toronto civil litigator, Bruce Baron, tells Advocate Daily.
Baron, principal of Gaertner Baron Professional Corporation, says there are two regimes to be mindful of when creating or updating an employment contract — the common law and the Employment Standards Act (ESA).
“The distinction is important because the common law typically provides more generous termination entitlements while the ESA provides for one week of notice pay per year of employment to a maximum of eight weeks.”
“Employers would be well advised to draft contracts that expressly comply with the requirements set out by the ESA,” he adds.
Under the Act, Baron says employers generally must provide no less than (i) ‘notice pay’ in the amount of one week per year of employment to a maximum of at 8 weeks (s. 57 of the ESA) ; (ii) ‘severance pay’ in the amount of one week per year of employment to a maximum of 26 weeks (s. 65) and (iii) continuation of company benefits through the applicable statutory notice period (s. 60(1).
“There is well-established law that any employment agreement that provides for less than the ESA will be deemed void and the employee will be governed by the common law,” he says. “Section 5(1) expressly states that employers cannot contract out of the Act.”
In the case before the appeal court, an employee brought an action against his former employer for damages arising from his termination. After 19 years of employment, the appellant was terminated without cause, given eight weeks’ notice — during which time he continued to receive benefits — and was paid more than 19 weeks’ salary as severance pay.
The motion judge found the employer’s approach was consistent with the appellant’s minimum entitlements under the ESA and reflected the defendant’s interpretation of the termination clause in the employment contract, which stated:
“The company’s policy with respect to termination is that employment may be terminated by either party with notice in writing. The notice period shall amount to one week per year of service with a minimum of four weeks or the notice required by the applicable labour legislation.”
The appellant argued that the motion judge had erred in finding that the contract excluded the right to reasonable notice under the common law and that the termination clause was void because the respondent attempted to contract out of the minimum statutory entitlement to severance pay.
“In the alternative, the appellant submits that the motion judge erred in failing to consider the appellant’s alternate argument that he is entitled to one week’s notice for every year of employment under the termination clause, with the result that he should have received 19 weeks’ notice,” the decision states.
In partially upholding the clause in favour of the employer, Baron, who was not involved in the matter and comments generally, says the result is interesting because the termination provision only contemplated payment of notice, not severance pay or the continuation of benefits.
“The Court of Appeal held the clause was merely silent on the provision of severance,” he says. “However, being silent on severance obligations is not equivalent to contracting out of the ESA.”
The three-judge panel found there was no language restricting the appellant’s entitlements to only the minimum notice stipulated under the ESA, upheld the employment contract, and declined to award the employee common law notice.
“This decision offers some comfort for employers and their counsel, but it’s crucial to be as explicit as possible when drafting termination clauses,” Baron says.