Court of Appeal Rules Termination Clause Must Be Read In Whole

Written on behalf of Arbesman Hamilton LLP

Typically, when people are terminated from their jobs without cause, they are entitled to notice or payment in lieu of notice. While the Employment Standards Act (the “ESA”) provides for the minimum notice required, common law has broadened what can be provided to employees. However, it is possible for employees to contract out of those common law entitlements by signing an employment contracts binding them to the minimum amounts established under the ESA. But employers should take note of a recent decision from the Ontario Court of Appeal which highlights the importance of making such clauses free of ambiguity.

Background

The employee was hired by the employer on March 30, 2015. Prior to his hiring, he had been employed by a customer of the employer in the United States. When he was hired, his start date with his previous employer, September 25, 2000, was recognized for severance purposes as well as other areas of his contract.

On April 19, 2016, the employee was advised his employment would be terminated, without cause, on July 8, 2016. He continued to work for the employer until July 8, 2016, he continued to receive his salary during this time ($65,507 annually). He also received $24,121.59 as a termination payment, which was equal to 19.4 weeks of salary.

The contract

The contract established the employee’s “service reference date” as September 25, 2000. The contract stated this date would be used to “determine vacation entitlement, retirement eligibility, entitlements upon termination of employment, eligibility for Short Term Disability benefit payments, eligibility for the Quarter Century Luncheon, eligibility for (employee) Stock/RSU equity programs, and eligibility for a Retirement Event/Gift.”

The contracts termination clause stated,

“If you are terminated by (the employer) other than for cause, (the employer) will provide you with notice or a separation payment in lieu of notice of termination equal to the greater of (a) one (1) month of your current annual base salary or (b) one week of your current annual base salary, for each completed six months worked from your (the employer) service reference date to a maximum of twelve (12) months of your annual base salary. This payment includes any and all termination notice pay, and severance payments you may be entitled to under provincial employment standards legislation and Common Law. Any separation payment will be subject to applicable statutory deductions. In addition, you will be entitled to benefit continuation for the minimum notice period under applicable provincial employment standard legislation. In the event that the applicable provincial employment standard legislation provides you with superior entitlements upon termination of employment (“statutory entitlements”) than provided for in this offer of employment, (the employer) shall provide you with your statutory entitlements in substitution for your rights under this offer of employment.”

With a service date of September 25, 2000, the employee claimed an entitlement to pay in lieu of notice at common law based upon a notice period of 16 months.

Superior court decision

The employer brought a motion for summary judgment. The judge in the original decision looked at a number of arguments put forward by the employee, but only accepted one of them, namely that “the termination clause fails to rebut the presumption at common law that the employee is entitled to reasonable notice of termination.”

The judge in the Superior Court decision noted three relevant parts of the termination clause. They were:

Options Provision

If you are terminated by (the employer) other than for cause, (the employer) will provide you with notice or a separation payment in lieu of notice of termination equal to the greater of (a) one (1) month of your current annual base salary or (b) one week of your current annual base salary, for each completed six months worked from your (employer) service reference date to a maximum of twelve (12) months of your annual base salary.

Inclusive Payment Provision

This payment includes any and all termination notice pay, and severance payments you may be entitled to under provincial employment standards legislation and Common Law. Any separation payment will be subject to applicable statutory deductions. In addition, you will be entitled to benefit continuation for the minimum notice period under applicable provincial employment standard legislation.

Failsafe Provision

In the event that the applicable provincial employment standard legislation provides you with superior entitlements upon termination of employment (“statutory entitlements”) than provided for in this offer of employment, (the employer) shall provide you with your statutory entitlements in substitution for your rights under this offer of employment.

The judge looked at the order in which the paragraphs were arranged, noting, “The inclusive payment provision is not repeated. In my view, it is not clear from a reading of the clause that the inclusive payment provision was meant to apply to the failsafe provision. If that were the case, then the inclusive payment provision could just as easily have been included at the end of the paragraph and could have just as easily been specified to apply to both scenarios.”

While the employer could have clearly excluded common law notice entitlement in both the options provision and the failsafe provision scenarios, it was not clear that the exclusion of the common law notice entitlement applied to the failsafe scenario. As such, the ambiguity had to be read against the employer.

On appeal

The employer argued that the motion judge erred in failing to consider the termination clause as a whole, thus creating an ambiguity where one does not exist. The court agreed with the employer that ambiguity does not simply arise out of competing clauses, rather it arises in situations where there are two ore more reasonable interpretations.

In looking at the last section alone, the court found the third clause, “does not purport to sever any part of the termination provision. Rather, it ensures that any portion of the termination clause that falls short of the ESA must be read up so that it complies with the ESA.”

The court continued with the approach of reading the termination clause as a whole, and found the motion judge made an error when dividing it into parts. When read as a whole the court determined,

“The parties have set out a formula for calculating the amounts owing to a terminated employee. The amounts owing include any entitlement under employment standards legislation and the common law. To the extent that employment standards legislation provides for something superior, the employee will receive the statutory entitlement.”

With the decision being in favour of the employer, the employee was left with a $20,500 bill to pay for the employer’s costs in addition to his own costs.

Employment law disputes can be time consuming, not to mention expensive and stressful. The exceptional employment law team at Arbesman Hamilton LLP represent both employees and employers in employment law matters and workplace disputes. We help employers draft employment contracts designed to clearly lay out each party’s rights and responsibilities. We also help employees understand if the terms of their contract have been violated or fulfilled when an dispute arises. Please call us at 416-481-5604 or contact us online to see how we can help with your employment law issues today.