How Clear Must A Contract Be When Providing Only The Minimum In Termination Provisions?

Written on behalf of Arbesman Hamilton LLP

The Employment Standards Act, 2000 (ESA) requires employers to provide, at minimum, two weeks of notice (or pay in lieu of) when an employee is terminated without cause. However, the common law (i.e. history of court decisions) has provided more generous terms than those set out in the ESA. The Ontario Superior Court of Justice recently heard a case where the court was asked how explicitly clear an employer must be when telling an employee that it intends to provide no more than the minimum amount of notice as set out in the ESA.

The Contract and Dismissal

The employee worked as a manager for the employer, a fitness chain. She was hired in August 2015 to manage the employer’s Orleans location, which included managing 90 people. Her annual salary was $90,000. In addition, she could earn an incentive bonus worth up to 20% of her salary.

The employee signed two documents when she began work. The first was a non-competition agreement, and the second was an employment agreement, which contained a paragraph reading:

“(Employer) may terminate your employment without cause at any time during the term of your employment upon providing you with notice or pay in lieu of notice, and severance, if applicable, pursuant to the Employment Standards Act, 2000 and subject to the continuation of your group benefits coverage, if applicable, for the minimum period required by the Employment Standards Act, 2000, as amended from time to time.”

On December 5, 2016, the employee was informed she was being terminated without cause, effective immediately. The employer intended to the employee two weeks’ wages in lieu of notice, but accidently paid her for four weeks. They also paid her outstanding vacation pay and maintained her group benefits for two weeks.

The employee found work as a mortgage representative on February 1, 2017.

The Employee’s Position

It was the employee’s position that the employment contract did not rebut her entitlement to notice under common law, and that it was not her intention to waive her rights under common law by signing the contract. She stated that the employer had made no verbal mention of their intention to preclude her common law rights. Finally, it was the employer’s position that due to her role, her lack of post-secondary education, the close proximity of her dismissal to Christmas, the requirement to sign a non-disclosure agreement, and that the employer made no effort to help her find employment, that she was entitled to a six-month reasonable notice period.

The Employer’s Position

Meanwhile, it was the employer’s position that the contract was clear, and that “a termination provision contained within an employment contract can oust the presumption towards common law reasonable notice without expressly stating that the legislative minimum notice is provided in lieu of common law entitlements…” and that in the alternative, the factors to be considered should be the employee’s age, length of service, position, and ability to obtain alternate employment. The employer suggested that if anything extra was owed, it should only be two-three months, less the month already paid.

Caselaw on Termination Clauses

The court looked to the interpretation of the termination clause as the heart of the case, and undertook a review of other cases on the issue

In a recent case, the Ontario Court of Appeal laid out the principals that apply in determining the interpretation and enforceability of a termination clause. They are:

  • When employment agreements are made, usually employees have less bargaining power than employers. Employees rarely have enough information or leverage to bargain with employers on an equal footing.
  •  Many employees are likely unfamiliar with the employment standards in the ESAand the obligations the statute imposes on employers. These employees may not seek to challenge unlawful termination clauses.
  •  The ESA is remedial legislation, intended to protect the interests of employees. Courts should thus favour an interpretation of the ESA that “encourages employers to comply with the minimum requirements of the Act” and “extends its protections to as many employees as possible”, over an interpretation that does not do so.
  • Termination clauses should be interpreted in a way that encourages employers to draft agreements that comply with the ESA. If the only consequence employers suffer for drafting a termination clause that fails to comply with the ESAis an order that they comply, then they will have little or no incentive to draft a lawful termination clause at the beginning of the employment relationship.
  •  A termination clause will rebut the presumption of reasonable notice only if its wording is clear. Employees should know at the beginning of their employment what their entitlement will be at the end of their employment.
  •  Faced 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 [Citations omitted] (paras. 25-28).

The court then turned to another recent case, Vinette v. Delta Printing Limited, which was over a similar issue and with similar contract language, reading “Termination Without Cause: Delta may terminate your employment at any time on a without cause basis by providing you with written notice of termination or payment in lieu of that notice and severance pay, if applicable, mandated by the ESA.

“In the event of without cause termination Delta will continue those benefits mandated by the ESA for the period required by the ESA, and you will be responsible for the replacement of such benefits thereafter.”

In that case, the court found the wording to be ambiguous, and interpreted it in favour of the employee, stating “[a]s a matter of law, if an employer wishes an employee to contract out of rights that accrue at common law, the words of limitation must be clear and the significance of the provision must be made clear”

The Decision

The court ultimately found that, in this case, the employee may not have been aware of the implications of the employment agreement, noting that employees are in a vulnerable state when doing so.

The court ruled in favour of the employee, writing “the wording of the termination clause must be clear to rebut the presumption of reasonable notice. The wording in (the employee’s) termination clause was unclear. The evidence does not support that she knew at the beginning of her employment with (the employer) what her entitlement would be at the end of her employment. The wording of the termination clause was ambiguous and, like in Vinette, must be resolved in (the employee’s) favour.”

After looking at a number of factors, including the employee’s age, education, length of employment, as well as her ability to find new employment, the court determined the appropriate period of notice should be three months.

At Arbesman Hamilton LLP we represent both employees and employers in employment law matters. We can assist in the writing of clear and unambiguous employment contracts that clearly explain the rights and responsibilities of all parties. We can also help employee’s understand what rights they have under a contract. Contact us online or call us at 416-481-5604 to schedule a consultation today.