In Ontario, drafting an employment agreement with enforceable termination language has been a continuous pain point for employers over the last number of years. While the law allows businesses to displace the presumption of common law notice of termination with specific language in employment agreements, Ontario courts have consistently found such termination language unenforceable for new and sometimes inventive reasons.
However, in a recent decision from the Ontario Superior Court of Justice,[1] Bertsch v Datastealth Inc. (“Bertsch”), the Court upheld a termination provision which limited the employee’s entitlements to the minimums owed under the Employment Standards Act, 2000 (the “ESA”).
What Happened?
The Plaintiff in the case was employed for approximately eight and a half months. Upon termination, the Employer provided the Plaintiff four (4) weeks’ pay in lieu of notice, greater than the one (1) week’s pay in lieu of notice he would have been entitled to under the ESA.
The Plaintiff’s written employment agreement (the “Agreement”) limited his rights on termination to the minimum entitlements under the ESA as follows:
5. Termination of Employment by the Company: If your employment is terminated with or without cause, you will be provided with only the minimum payments and entitlements, if any, owed to you under the [ESA] and its Regulations, … including but not limited to outstanding wages, vacation pay, and any minimum entitlement to notice of termination (or termination pay), severance pay (if applicable) and benefit continuation. You understand and agree that, in accordance with the ESA, there are circumstances in which you would have no entitlement to notice of termination, termination pay, severance pay or benefit continuation.
The Agreement also provided that the plaintiff agreed to forego any entitlements at common law in exchange for ESA entitlements:
11.(a) If any of your entitlements under this Agreement are … less than your minimum entitlements owning under the [ESA] …you shall instead receive your minimum entitlements under the [ESA]…
(h) This Agreement constitutes the complete understanding between you and the Company with respect to your employment … The parties have expressly contemplated whether there are any additional implied duties owed by the Company to you, at common law or otherwise, outside the written terms of the Agreement or under statute and confirm that there are no such obligations…
Upon termination, the Plaintiff brought a claim seeking twelve (12) months’ pay in lieu of notice at common law. The Plaintiff argued that the termination provisions were not enforceable because of ambiguity and that they did not properly reference the statutory exemptions from compensation on dismissal, in violation of O.Reg 288/01. Specifically, the Plaintiff argued that the provisions purported to allow termination for cause, without notice, even in the absence of the now well-established but higher threshold of “wilful misconduct, disobedience or wilful neglect which is not trivial and which has not been condoned by the employer”.
The Employer brought a preliminary motion to interpret whether the termination provision was enforceable as a matter of law. The question for the Court was to determine if the provisions properly complied with the ESA and O.Reg 288/01 and were therefore enforceable in displacing the Plaintiff’s right to common law notice of termination.
What Did the Court Decide?
The Court decided in favour of the Employer and determined the termination provision complied with the ESA as there was no reasonable alternative interpretation of the provision that may result in an illegal outcome, i.e., no reasonable interpretation which would be contrary to the ESA. The Court reiterated that where any ambiguity exists, it will be decided in favour of the employee. However, the termination provision at issue was found to be clear and unambiguous.
The Court distinguished the facts of the case from previous decisions like Livshin v. The Clinic Network Canada Inc.[2] In Livshin, the termination clause was found to be contrary to the ESA because it allowed the employer to terminate the employee without notice for just cause in broader circumstances than prescribed by the ESA and O.Reg 288/01. The terms of the employment agreement in Livshin were unenforceable for the reasons set out in Waksdale v. Swegon North America Inc.[3], where the Court established that where any part of a termination provision does not comply with the ESA, the entire termination clause is rendered void.
In both this matter and in Livshin, the termination provisions contained a “failsafe” clause which provided that if a term in the agreement was found to be unenforceable, it would not affect other terms of the agreement. The Court distinguished the failsafe clause in the Agreement from Livshin by noting that the Agreement only provides that the terminated employee gets at least their minimum entitlements under the ESA. This clause was clear and unambiguous. On the contrary, the failsafe clause in Livshin stated that if a contractual term was found to be unenforceable for any reason, that finding would not affect any other term of the agreement. Ontario courts have routinely found that a “failsafe” clause cannot save an otherwise illegal clause in an employment agreement.
The Court ultimately struck out the Plaintiff’s claim.
Key Takeaways for Employers
In a post-Waksdale era, employers have been hard-pressed to construct termination provisions that Ontario courts will find enforceable. Guidance from an Ontario court has been much needed to signal that businesses can in fact expect their employment agreements to be enforced, provided that the termination provisions are clear and unambiguous.
The Court’s decision in Bertsch suggests that a relatively simple termination provision may withstand scrutiny, in situations where they are appropriate. The termination provision in Bertsch was straightforward and did not leave room for alternative interpretation.
Employers should be reviewing their employment agreements regularly to assess whether there are potential enforceability issues and whether new contracts should be implemented for either new or existing employees. If you need assistance reviewing your current agreements or have questions about this subject, please contact one of the authors or your usual Fasken lawyer.
