While recent court decisions mean we know more about termination clauses than we did one year ago, a year is a lifetime in employment law. Make peace with change and its constant co-workers: uncertainty and insecurity.
“If you’re invested in security and certainty, you are on the wrong planet.”
You can’t always get what you want
Employees seek job security, but, in most Canadian, non-unionized workplaces, such security is the exception: Employment can usually be terminated “without cause” if employers provide applicable statutory minimum entitlements, along with notice or pay in lieu, under the common law.
Employers, however, crave cost certainty. They may ask employees to sign written contracts that attempt to rebut the presumption of common law notice upon termination. Instead, the employee may be left with only statutory minimums, which are usually far more predictable and less expensive than what the common law provides.
Over the years, Ontario courts have scrutinized contracts purporting to oust common law notice leaving only Employment Standards Act minimums. Parties cannot legally contract out of any ESA minimum standard unless a greater benefit is provided. Therefore, courts have policed contracts to ensure the language “employed” to limit employees to the ESA does go so far as to violate the ESA.
Ironically, in the quest for certainty, employers may achieve uncertainty (and larger payouts to employees and higher legal bills after court battles).
For years, there appeared to be consensus that strict language was required to displace the common law without infringing on the ESA.
Then the Ontario Court of Appeal in Oudin v. Centre Francophone de Toronto dismissed an appeal from a motion judge’s ruling upholding a termination clause (providing “the minimum required by the ESA”) that was linguistically sparse and relatively imprecise when compared to earlier rulings.
Applying a contextual approach, the court approved the motions judge’s comments that “[t]here was no intent to contract out of the ESA in fact; to the contrary, the intent to apply the ESA is manifest” and held that “the motion judge’s interpretation of the contract is entitled to deference.”
Employer-side lawyers rejoiced. Employee-side lawyers were frustrated (not to be confused with “frustration” in the contractual sense). As a lawyer for both sides and as a neutral mediator, I viewed the decision as a lesson in humility. I wrote on this site that the lesson of Oudin was that we know nothing.
Finally, employees got a break. In early 2017, the Ontario Court of Appeal rededicated itself to strict language. In Wood v. Fred Deeley Imports Ltd., Justice Laskin noted that employee vulnerability is a relevant consideration when interpreting termination clauses and “[f]aced with a termination clause that could reasonably be interpreted in more than one way, courts should prefer the interpretation that gives the greater benefit to the employee.”
In a retreat away from the court’s approach in Oudin, the court held that:
“The termination clause in Wood’s employment agreement contravenes the Employment Standards Act, 2000 for two reasons. First, it excludes Deeley’s statutory obligation to contribute to Wood’s benefit plans during the notice period. Second, it does not satisfy Deeley’s statutory obligation to pay [ESA] severance pay. On either ground the clause is unenforceable. Wood is entitled to reasonable notice of termination or the equivalent in damages.”
Yet, in my article about Wood, I discovered a lively debate about whether Oudin (not referred to in Wood) was still relevant and if a shorter termination clause than the one in Wood might survive judicial scrutiny.
After Wood, I noticed fewer lawyers citing Oudin in their letters and mediation briefs, but it did not disappear.
That should change with the October release of North v. Metaswitch Networks Corporation. In North, the Ontario Court of Appeal refused to salvage an ESA-only termination clause by applying a severability provision to the last paragraph of the termination clause that violated the ESA by denying an employee his commissions.
The applications judge in North relied on the motions judge’s decision in Oudin in upholding the termination clause. However, writing for the Court of Appeal, Justice Feldman noted that “the problem with that approach is that, to the extent that it effectively rewrites or reads down the offending provisions . . . employers will be incentivized to contract out of the ESA, but include a severability clause to save the offending provision in the event that an employee has the time and money to challenge the contract in court.”
Accordingly, employers have only one chance to get ESA-only language right.
Finally, the court added:
“The application judge [in North] found the motion judge’s reasons in Oudin to be analogous. However, the courts in Oudin also did not have the benefit of this court’s subsequent decision in Wood . . . Therefore, this court’s endorsement in Oudin should not be viewed as supporting a broad, overarching principle regarding the motion judge’s application of the severability provision in that case.”
Thus, the pro-employee, strict-language approach of contractual interpretation in Wood has eclipsed the employer-friendly, laissez-faire approach in Oudin.
So, what do we know?
It is safe to say that we know the following — for now:
- The courts will heavily scrutinize termination clauses in a manner that favours employees.
- If a termination clause has the potential to violate the ESA, then it is unenforceable.
- If any part of a termination clause violates the ESA, the entire clause is illegal and a severability provision will not save it.
- As before, despite a lawyer’s best efforts and advice to an employer, a pristinely worded termination clause may be worthless in the end. Through an employer’s own actions or omissions, there may be failure of consideration (the employee received nothing of value in exchange for signing the contract, thereby making it unenforceable).
However, there is plenty that we don’t know, such as:
- In light of the court in Wood distinguishing an earlier decision in Roden v. The Toronto Humane Society, is it safer for employers to use fewer words in a termination clause and avoid all-inclusive language?
- For public policy reasons, will future court decisions put an onus on employers to make clear to employees the differences between ESA entitlements and the common law before they sign ESA-only contracts?
- Could the Legislature eventually increase ESA minimum entitlements on termination to such an extent that the potentially smaller gap between ESA and the common will make most of what is discussed here moot?
While we know more about termination clauses than we did one year ago, a year is a lifetime in employment law. Therefore, make peace with change and its constant co-workers: uncertainty and insecurity.
Mitchell Rose is a lawyer, chartered mediator and settlement counsel with Stancer Gossin Rose LLP in Toronto. Mitch has a passion for employment and law and language. He can be reached at firstname.lastname@example.org.