Ontario Court of Appeal Reads Termination Clause in Favor of Employer

By Frank Portman Jul 21, 2016
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The Ontario Court of Appeal deemed a 'termination clause" valid despite some wording that could have been interpreted to violate the law.

Canadian employers must, generally speaking, provide advance "reasonable" notice of termination to employees or pay them what they would have earned during the time between when notice should have been provided and discharge. Employers and employees can agree by contract to reduce this obligation through what are commonly known as termination clauses.

However, statutes in each Canadian jurisdiction guarantee certain minimum entitlements on termination, including a minimum amount of notice even in cases where a contract exists. In Ontario, the applicable statute is the Employment Standards Act, 2000 (ESA). If a contract limits an employee's entitlements below the minimum ESA requirements, the termination provision is void. The employer then becomes liable for the full amount of what the court deems reasonable notice given the circumstances. This can mean the difference between a maximum package of 34 weeks of combined notice and severance pay and 24 months of pay in lieu of common law reasonable notice (or more).

In light of this potentially significant gap between statutory minimums and common law exposure, employees will often attack the validity of termination clauses. Unfortunately for employers, Canadian courts have been quite receptive to these arguments, often finding that an ambiguity or the potential for future noncompliance is sufficient to find a termination clause void.

However, a recent case from the Ontario Court of Appeal bucks this judicial trend.

In Oudin v. Centre Francophone de Toronto, a summary judgment motion dealt with a termination clause that provided for three possible entitlements on termination for the employee and suggested the choice was at the employer's sole discretion.

Two of the entitlement structures were contrary to the ESA.

Significantly, the contract contained a saving provision, which purported to modify any clause in the agreement that was contrary to law to make it compliant.

In many instances, courts have held that if a termination clause could be interpreted as violating the ESA, then it is void (despite the fact that other possible interpretations would not violate the ESA). Had that reasoning been applied in Oudin, the termination clause would surely have been found void.

The trial court found that the saving provision was a clear indication the parties had intended to comply with the ESA and other laws. Given that only the greater notice period would satisfy the ESA, the parties must have intended the greater notice period to apply. Since it satisfied the requirements of the ESA, the termination clause was determined to be valid and enforceable.

The employee appealed.

The Ontario Court of Appeal took issue with the translation of the termination clause, which had been originally drafted in French. Specifically, it found that the translation of the compliant section of the clause should have been read as establishing the entitlement to minimum notice of termination required by the ESA, rather than to all minimum entitlements. This could be important because the ESA mandates other entitlements on termination beyond pay or notice, such as benefit continuation for a certain period of time.

However, the Court of Appeal found that this minor error was ultimately of no import. The trial judge had correctly identified that this provision addressed the notice requirement only and was silent on other entitlements. Therefore, it did not disentitle the employee from the other required entitlements under the ESA and could not be said to be contrary to it.

As a result, the Court of Appeal deferred to the decision of the trial judge and upheld the termination clause. This limited the employee's entitlements to a fraction of what they would have been without a valid termination clause.

There have been a number of recent decisions in which the courts have held that a failure to mention such other entitlements renders the termination clause void. Notably, in those cases, the clauses expressly provided that the employees had no entitlements beyond those expressed in contract. That was not the case in Oudin, or the Court of Appeal would likely have come to a different conclusion.

Oudin v. Centre Francophone de Toronto, 2016 ONCA 514 (CanLII, June 20, 2016).

Professional Pointer: This case, like so many others, highlights the risk of relying on old termination clauses drafted before the relatively recent jurisprudence—this case notwithstanding. Employers that rely on such termination clauses to minimize or at least predefine the costs of termination should take a fresh look in order to ensure their clauses will stand up to heightened scrutiny.

Frank Portman is a lawyer with Stringer LLP, the Worklaw® Network member firm in Toronto.

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