Upcoming Webinar: June 6, 2024 @ 12:30 P.M. (ET)  |  Workplace Restorations  |  Register Today!

Serious insight for serious situations.

Serious insight for serious situations.

<< Back to all posts

“Draconian” termination provision found enforceable

While you’re here, you may wish to attend one of our upcoming workshops:

In this advanced course, we take the learning about writing reports to the next level. Building on the teaching in our Fundamental course, we review specific aspects of report-writing in more detail, including preparing allegations, summarizing the investigative process and writing more effective findings. This highly practical course will include individual and group written exercises, all designed to give participants enhanced tools to elevate the readability of their reports.
Register4 places remaining

With an introductory paragraph that reads like a soap opera, the recent decision of the Ontario Superior Court of Justice in Kielb v. National Money Mart Company quickly caught my attention. As summarized by Justice Akhtar,

This case involves allegations of broken promises, ambiguous clauses and inequitable treatment and, at its heart, a contract that was both enticing in its promises and cruel in its execution.

It is rare for an employment law case to be described with such passion and sensationalism; however, the Court’s decision in this matter is indeed a significant one – in particular, it represents a welcome victory for employers seeking to restrict an employee’s entitlements upon termination.

Mr. Kielb commenced employment with National Money Mart Company (“Money Mart”) in December of 2008, and was terminated on a “without cause” basis in April of 2010. At issue before the court were (i) the representations made to Mr. Kielb prior to the commencement of his employment, which Mr. Kielb sought to rely upon in his claim for further incentive payments beyond the date of his termination, and (ii) the termination provisions set out in the Employment Agreement signed by Mr. Kielb.

The court heard evidence that when he was first offered the position, Mr. Kielb was not satisfied with the proposed salary and expressed his concern to the Money Mart management team. In response, Mr. Kielb was told “that the bonus program would more than make up for the deficiencies in salary, and would form a significant part of [his] compensation.”

However, the Employment Agreement that was ultimately signed by Mr. Kielb set out the following limitation on Mr. Kielb’s incentive pay entitlements:

Any bonus which may be paid is entirely at the discretion of the Company, does not accrue, and is only earned and payable on the date that it is provided to you by the Company. For example, if your employment is terminated, with or without cause, on the day before the day on which a bonus would otherwise have been paid, you hereby waive any claim to that bonus or any portion thereof. In the event that your employment is terminated without cause, and a bonus would ordinarily be paid after the expiration of the statutory notice period, you hereby waive any claim to that bonus or any portion thereof.

The Employment Agreement also included the following “without cause” termination provision:

The company shall be entitled to terminate your employment with the Company at any time without just cause, provided that:

i) The Company shall give you written notice of such termination as required by the ESA, which notice may be effective immediately (in which case you will be provided with pay in lieu of notice); and,

ii) The Company shall, within 10 business days from the date of giving such notice, or pay in lieu thereof, pay to you 4 (four) weeks per year of service and pro-rated for partial years of service (the “Termination Payment”), inclusive of any amounts paid in clause (i) above, in return for your execution of a full and final release of any and all claims by you as against the Company, Dollar, or any related entities. You agree to accept the Termination Payment in full satisfaction of all entitlement arising from such termination, whether under state, contract or common law, including entitlements to reasonable notice.

Finally, the Employment Agreement stipulated that:

This letter contains the entire agreement between you and the Company, Dollar and DF. There are no other oral or written agreements or representations between you and the Company, Dollar and DFC.

Following his dismissal, Mr. Kielb disputed the language in the Employment Agreement, and instead sought a pro-rated incentive payment for Money Mart’s 2010 fiscal year (and throughout the contractual notice period), together with his salary for the duration of the contractual notice period. In support of his position, Mr. Kielb argued that the contractual limitations on his incentive pay entitlements upon termination were unenforceable on the following grounds:

  1. Public policy, because (a) it was unreasonable for Money Mart to rely upon the “entire agreement” clause in the Employment Agreement when it had previously assured him that the bonus payments would represent a significant part of his overall compensation package, and (b) he did not have a reasonable opportunity to seek legal advice before signing the Employment Agreement;
  1. Inconsistent application, on account of the fact that other employees terminated in the same timeframe had received incentive payments for Money Mart’s 2010 fiscal year; and
  1. Ambiguity, insofar as the Employment Agreement did not expressly address his entitlement to an incentive payment during the statutory notice period.

After considering Mr. Kielb’s arguments, Justice Akhtar made the following findings:

  • …I find the defendant abused its stronger informational position in the circumstances to entice the plaintiff into consenting to an improvident clause.
  • …I conclude that the Entire Agreement Clause is unenforceable on public policy grounds in the sense that it would exclude the prior discussions between the plaintiff and [Money Mart]. It ill serves the public interest to permit companies and their recruitment agencies to orally promise automatic financial benefits and bonuses in order to secure prospective employment candidates and then eliminate those benefits without clear and timely warning. [emphasis added]

However, His Honour went on to reason as follows:

  • It may well have been that some of the provisions, particularly the “full and final release” clause in the termination provision, could be viewed as harsh. However, harshness of the provision does not make it invalid if both parties have agreed to it. [emphasis added]
  • Public policy would be ill served by permitting the plaintiff to accept a potentially lucrative position with the full knowledge that it contained a potentially unfavourable limitation clause and then to complain when that clause was actually executed.
  • …the fact that Money Mart treated [another employee] differently does not, per se, entitle the plaintiff to a bonus payment when he was otherwise legitimately denied it on the basis of his employment contract. There was nothing to stop Money Mart from being more generous to [another employee], so long as it acted in good faith and without ulterior motive. [emphasis added]
  • …I find the [incentive pay limitation] clause to be unambiguous in its restrictive nature. The clause is to be read in its entirety and, in my view, makes clear that if the plaintiff’s notice period fell within the bonus payment period, it would be honoured. [emphasis added]

Pursuant to that analysis, His Honour reached the following conclusion:

I find the contract to be enforceable both in respect to the bonus payment and the issue of termination payments. Whilst one may find the termination payment to be somewhat draconian in its application, particularly in requiring a full and final release for an additional period of payment, it was part of an agreement entered into with full knowledge by the plaintiff. He is bound by its terms. The plaintiff’s claim is therefore dismissed. [emphasis added]

Inasmuch as Money Mart was ultimately successful in enforcing the provisions of its Employment Agreement with Mr. Kielb, this case is helpful to employers. Moreover, Justice Akhtar’s decision highlights several important reminders for employers seeking to restrict an employee’s entitlements upon termination:

  1. When drafting employment agreements, take care to ensure that all employment-related benefits are continued for at least the statutory minimum notice period. If incentive payments represent part of the overall compensation package, the termination provisions should expressly stipulate that accrual and/or payment of such incentive payments will continue throughout the minimum statutory notice period.
  1. Employers have a duty to negotiate in good faith. It is unlawful for an employer to make verbal representations to a prospective employee during the interview process, and to subsequently revise those representations in an employment agreement, unless the employer expressly brings that change to the prospective employee’s attention.

Ultimately, provided that the employer (i) uses the right contractual language, and (ii) approaches the contract negotiations in the right way, an employee’s termination entitlements (including his or her right to a bonus payment) can indeed be restricted and defined.

Ryan D. Campbell

About the Author: Toronto Employment Lawyer Ryan D. Campbell assists both employers and employees in all facets of employment law, workers’ compensation law, and occupational health and safety law. Ryan also has experience assisting Ontario employers in complying with the Accessibility for Ontarians with Disabilities Act, and advising on the use of social media and technology in the workplace.