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Jun 20, 2019
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BACKGROUND

The law allows your employer to terminate your employment without cause, meaning "for no reason." However, an employee who is terminated without cause is entitled to reasonable notice of termination. Reasonable notice is often called common law notice, as distinct from notice under the Ontario Employment Standards Act ("the ESA"). When an employer fails to give an employee the notice they are entitled to, the employee might have a wrongful dismissal claim.

Reasonable notice can usually take two forms: working notice or pay in lieu of working notice. For example, if an employee is entitled to a reasonable notice period of eight weeks, the employer can pay the employee for all eight weeks at the beginning of the notice period, in which case the employee will leave work immediately. Alternatively, the employer can offer the employee eight weeks of working notice.

All Ontario employees are entitled to ESA notice, which is about one week per year of employment. Some employees are also entitled to severance pay, which is available if the employee has worked for the employer for at least five years and either:

  1. the termination is part of a permanent discontinuation of the business and the employee is one of 50 or more employees who lose their employment within a six-month time period; or
  2. the employer spends at least $2.5 million per year on wages. Severance pay is equivalent to one additional week’s pay per year of employment (for a total of two weeks per year of employment).

Unlike the ESA notice period, the common law notice period is different in every case. The length of the notice period is determined based primarily on the following factors:

  1. the employee's age;
  2. how long the employee has worked for the employer;
  3. the nature of the employee's work (including seniority and level of pay); and
  4. the likelihood that the employee will be able to find comparable work

You cannot waive your right to ESA notice, but you can waive your right to common law notice. However, you are presumed to be entitled to common law notice, unless your employment contract contains a termination clause that clearly limits you to ESA notice (or some other defined notice period that does not violate the ESA). A termination clause that 1) is unclear or 2) violates the ESA will likely be unenforceable. If a termination clause is found to be unenforceable, the employee will be entitled to common law notice.

RECENT DEVELOPMENTS

The threshold for enforceability is often unclear. Courts disagree on how termination clauses should be interpreted and when they should be enforced. For example, pay in lieu of notice (see above) must include bonuses and commissions, not just salary. Similarly, a terminated employee is entitled to receive benefits (where applicable) for the duration of the notice period. Courts have wrestled with questions like:

  • If a termination clause refers only to "salary", does the implied exclusion of other entitlements violate the ESA?; and
  • If a termination clause is silent on benefits, does it violate the ESA?

The Ontario Superior Court of Justice helpfully summarized the state of the law in Burton v Aronovitch McCauley Rollo LLP, 2018 ONSC 3018. In that case, the court explained that if a termination clause limits the employee to only those entitlements named in the clause, the clause must list all of the employee's entitlements under the ESA and other applicable legislation. Otherwise, the clause will violate the ESA. However, if the clause also refers to (for example) "other entitlements under applicable legislation", it will likely be enforceable. Consider the following (fictional) examples:

  1. If your employment is terminated without cause, you shall receive only the minimum notice or pay in lieu of notice to which you are entitled under the Employment Standards Act.
  2. If your employment is terminated without cause, you shall receive only the minimum notice or pay in lieu of notice to which you are entitled under the Employment Standards Act, as well as all other payments and benefits to which you are entitled under applicable legislation.

Both clauses seem to suggest that the employer is not required to go beyond the legal minimum. However, Clause 1 entitles the employee to "notice or pay in lieu of notice." It also contains the word "only." Taken as a whole, Clause 1 could result in the employee receiving notice or pay in lieu of notice and nothing else. It therefore could be found to violate the ESA and be unenforceable. Clause 2, by contrast, refers to "all other payments and benefits to which you are entitled." The Ontario Court of Appeal upheld a similar clause in Roden v Toronto Humane Society, 2005 CanLII  33578 (ON CA).

However, a termination clause in which the employer simply promises to comply with the ESA might not rebut the presumption of entitlement to common law notice. The Ontario Superior Court considered this issue recently in Bergeron v Movati Athletic (Group) Inc, 2018 ONSC 885. The presumption of common law notice is strong, and can only be rebutted by clear language. Consider two versions of Clause 2 above:

  1. If your employment is terminated without cause, you shall receive only the minimum notice or pay in lieu of notice to which you are entitled under the Employment Standards Act, as well as all other payments and benefits to which you are entitled under applicable legislation.
  2. If your employment is terminated without cause, you shall receive the notice or pay in lieu of notice to which you are entitled under the Employment Standards Act, as well as all other payments and benefits to which you are entitled under applicable legislation.

Clause 3 contains the words "only" and "minimum"; Clause 4 does not. With the words "only" and "minimum" removed, Clause 4 becomes a simple statement of fact. The employer is undertaking to comply with the law, and there is no "signal" to the employee that they are being asked to abandon any claim to common law notice.

KEY UNRESOLVED ISSUES

Severability Clauses

In the context of a contract, a severability clause is a clause that protects the contract as a whole in the event that part of the contract is found to be unenforceable. The unenforceable part is said to have been "severed", and the remainder of the contract is unaffected. In recent years, the courts have considered whether termination clauses that violate the ESA can be "saved" in the same way. In other words, if a termination clause that violates the ESA is followed by a guarantee that the employer will comply with the ESA, is the clause enforceable?

In North v Metaswitch Networks Corporation, 2017 ONCA 790 ("Metaswitch Networks"), the Ontario Court of Appeal said "no", holding that, if a termination clause violates the ESA in any way, the clause is unenforceable in its entirety and the employee is entitled to common law notice. However, the Court of Appeal then upheld a severability-type clause only ten months later in Amberber v IBM Canada Ltd, 2018 ONCA, 2018 ONCA 571 ("Amberber").

The clauses in Metaswitch Networks and Amberber were not identical. In Metaswitch Networks, the employment contact contained a general severability clause that applied to the whole contract. The clause simply stated that, if any part of the contract were found to be unenforceable, the remainder of the contract would remain in force. When part of the termination clause was found to violate the ESA, the employer argued that the balance of the termination clause should be "saved" by the severability clause. The Court of Appeal rejected this argument, and the employee was found to be entitled to common law notice.

In Amberber, the contract contained a guarantee that, if the termination clause were found to fall short of ESA minimums, the employee would receive his ESA entitlements in place of his contractual entitlements. While the Court of Appeal held that the termination clause did not violate the ESA and so did not need to be "saved", it noted that the guarantee clause was not a severability clause and therefore would have been enforceable.

The takeaway is that, while a general severability clause likely cannot "save" a termination clause that violates the ESA, a specific guarantee that the employer will comply with the ESA might be sufficient.

TAKEAWAY

The law acknowledges the inequality of bargaining power between employers and employees. As a result, employment contracts are generally interpreted to the employee's benefit. Still, what is "clear" in law might not be clear to the average employee, and the courts can only do so much.

It is therefore essential that employees understand their rights. The law allows employees to waive some of their rights, including very important rights. Many workers do not know that they are entitled, by default, to something more than ESA notice. Employees should always read their employment contracts closely and pay close attention to any termination provisions.

This blog post is not legal advice. It is merely a review of Ontario cases wrestling with the enforceability of termination clauses. It’s a good idea to seek legal advice before entering into a new employment contract or if you receive notice that your employment has been terminated.

*Thanks to Robert Boissonneault, law student at the University of Ottawa Faculty of Law, for his work on this post.

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