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As employers in Canada know, and unlike many states in the United States of America, Canadian employment is not “at will”. When an employer terminates the employee here, the employee is entitled to a certain amount of notice, either as working notice or as pay in lieu of notice.

In the world of Canadian employment law and termination of employment, there can sometimes be a big difference between what an employee is entitled to under the provincial legislation, which outlines the minimums that an employer must give, versus what a judge in a court of law would give an employee for a reasonable notice period (known as “common law notice”). That is why some employers try to draft employment agreements that limit an employee’s entitlement to notice of termination to the prescribed statutory minimums, attempting to disentitle them to common law notice payments. If done properly, it can be a good way of managing company cost. If done improperly, it can lead to expensive court battles.

Recent case law in Ontario has done several ambiguous flip-flops in terms of what is needed to make these types of termination provisions binding on the employee upon termination of employment.

In Wood v. Fred Deely Imports Ltd., 2017 ONCA 158 (“Wood”), the Ontario Court of Appeal released another decision relating to the enforceability of less-than-perfect termination clauses found in employment agreements. In this case, the employee with eight years of service was terminated without cause. Pursuant to the employer’s interpretation of the employment agreement, she was given her statutory minimums according to Ontario’s Employment Standards Act, 2000 (“the ESA”).

The employee argued that despite the existence of the termination provision in her employment agreement, she was entitled to more, namely, the more generous common law notice entitlements, because the termination provision breached the minimum requirements of the ESA.

The Ontario Court of Appeal disagreed with the lower courts and agreed with the employee, finding that the termination provision was indeed not enforceable because it did not include the continuation of benefits through the notice period, which is a statutory requirement under the ESA.

This is an interesting evolution after the confusion-inducing Ontario Court of Appeal decision of Oudin v. Centre Francophone de Toronto (“Oudin”), released in June 2016, in which a termination provision was upheld despite the fact that it did not reference the fact that benefits would be continued through the notice period per statutory minimums.

Unlike in Oudin, however, in the Wood case, the termination provision expressly stated that, “the Company shall not be obliged to make any payments to you other than those provided for in this paragraph”.

It may be the case then that termination provisions that are silent on the matter of benefit continuation may in some cases be deemed enforceable, whereas in cases in which benefit continuation appears to be expressly excluded by the language, there is no such leeway.

The case law will develop with further clarity over time. In the interim, the best advice employers can get on the matter of termination provision is to speak to a lawyer before drafting any such provisions, both regarding the language of the provisions themselves, and in order to ensure that the hiring/agreement signing is done properly. If employment agreements with termination provisions are not managed properly, employers may be found liable for unexpected or unforeseen amounts of common law notice of termination.

 


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