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Chaos in the realm of termination clauses

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Increasing Consistency

Although an employee is presumptively entitled to reasonable notice of termination, this notice can be altered by contract. However, for a termination clause to be enforceable, it must provide for an employee’s minimum statutory entitlements under the applicable employment standards act in a given jurisdiction.[1]  Where a termination clause is held unenforceable, the employee would be entitled to reasonable notice of termination at common law, which in the vast majority of cases, would be to the employee’s benefit.

Given that employers are required to continue an employee’s benefits (or pay in lieu) for the duration of the statutory notice period under the Employment Standards Act, 2000 (the “ESA”),[2] a couple of cases have held that termination provisions are void when silent on such benefit continuation.[3]  Furthermore, termination clauses that provide for a fixed notice period (e.g., the employee is entitled to one month of notice) have been held void when the period could be less than the statutory minimums in the future.[4]

Uncertainty Revived

Although cases on the enforceability of termination clauses have become more consistent, the area is still unsettled.  This uncertainty was recently revived by the decision in Oudin v L Centre Francophone de Toronto.[5]

In Oudin, the contract of employment contained the following clauses relevant to this discussion:

s9.2:  […]  The CFT may also terminate this agreement for any other reason by giving the employee 15 days’ notice or the minimum prescribed by the Employment Standards Act or by paying an amount of salary equal to the salary the employee would have had the right to receive during the notice period (after deduction and/or withholding at source), in the entire discretion of CFT.

s12.2: If any of the provisions of the present agreement is invalid or unable to be performed by virtue of any law, regulation, order or any other requirement or other principle of law, this modality shall in such case be considered to be modified or nullified, but only to the extent necessary to comply with the statute, regulation, order, legal requirement or principle and the other dispositions of the present agreement shall remain in force.

The court held s9.2 enforceable despite there being no mention of benefits and there being a potential notice period less than an employee’s statutory entitlement under the ESA. The employee argued that the clause gives full discretion to an employer to provide either 15 days’ notice or the ESA minimum. This discretion would enable the employer to give less than the minimum statutory entitlement in a situation where the employee would otherwise be entitled to greater than 15 days’ notice under the ESA. However, the court maintained that s9.2 was enforceable because:

  • the specific reference to the ESA suggested intent by the employer to comply with the ESA;
  • the employer historically paid departing employees the greater of the statutory entitlement and 15 days; and
  • 2 would modify s9.2 if it would otherwise be held unenforceable.

Furthermore, the court rejected the employee’s argument that s9.2 should be struck by virtue of contra proferentem, a doctrine which interprets ambiguities in favour of the party who did not draft the contract, by explaining:

the interpretation that most favours the interest of the employee is the one that provides the employee with the greater of the two levels of notice, not the least. Contra proferentem is not a means of finding the least favourable interpretation to the employee with a view to invalidating the contract in whole or in part.”

What Does This Mean?

Oudin is a rare case that pushes the boundaries of termination provisions in favour of the employer. It illustrates that the courts may choose to resolve a technical fault by considering the intent and historical behaviour of the parties. The inconsistency amongst the lower courts on these issues is yet to be resolved by an encompassing decision at the Ontario Court of Appeal or the Supreme Court of Canada. Until then, it is best practice for employers to draft these clauses by clearly setting out a minimum ESA entitlement and a continuation of benefits, rather than rely on the courts to read in such elements.

David Witkowski

About the Author: Toronto employment lawyer David Witkowski supports both employee and employer clients with legal counsel in all areas of employment law, including employment contracts, wrongful dismissals, workplace policies, employment standards, workplace investigations and human rights in the workplace.

[1] Machtinger v. HOJ Industries Ltd., [1992] 1 SCR 986, 1992 CanLII 102 (SCC).

[2] Employment Standards Act, 2000, SO 2000, c 41, s. 5(1).

[3] Wright v. The Young and Rubicam Group of Companies (Wunderman), 2011 ONSC 4720 (CanLII); Stevens v. Sifton Properties Ltd., 2012 ONSC 5508 (CanLII).

[4] Shore v. Ladner Downs, 1998 CanLII 5755 (BC CA).

[5] 2015 ONSC 6494 (CanLII).