Enforceability of Termination Provisions

Employment and Labour Law: Enforceability of

Termination Provisions

SEMINARS | 2015

WHY USE EMPLOYMENT AGREEMENTS?

• Protect valuable assets

• Confidential information.

• Intellectual property.

• Trade relationships.

• Create certainty (particularly at the time of termination)

• Business decisions vs. legal decisions.

• Provide leverage for negotiations.

• Absent employment agreements with enforceable termination

provisions limiting entitlements upon termination of employment,

employees are entitled to reasonable notice at common law.

• Save money

• Payments to former employees.

• Payments to outside counsel.

2

DRAFTING ENFORCEABLE TERMINATION PROVISIONS

Termination language must comply with the Employment Standards

Act, 2000 (“ESA”)

S. 5(1) subject to subsection (2), no employer or agent of an employer

and no employee or agent of an employee shall contract out of or

waive an employment standard and any such contracting out or

waiver is void.


Wright v. The Young and Rubicam Group of Companies, 2011 ONSC 4720

• Highlights the importance of carefully drafted termination provisions.

• The court set aside the termination clause in the employee’s employment

contract and awarded common law notice, on the basis of 2 grounds:

1. The termination clause did not refer to benefits during the statutory

notice period;

2. In certain circumstances, although not in those present at the time of

the employee’s termination in this case, the termination provision

would have resulted in less termination and severance pay than

required by the ESA.

• Employment agreements must comply with the ESA at all times.


Wright v. The Young and Rubicam Group of Companies, 2011 ONSC 4720

"There is, in my view, no particular difficulty in fashioning a termination clause

that does not violate either the minimum standards imposed by the Employment

Standards Act or the prohibition against waiving statutory minimum requirements

and there is no compelling reason to uphold a termination clause which the

draftsman may reasonably be understood to have known was not enforceable

either at all or under certain circumstances."


Stevens v Sifton Properties Ltd., 2012 ONSC 5508

• Ms. Stevens was employed in the position of head golf professional. The terms

and conditions of her employment were governed by an offer letter which

included the following termination clause:

With respect to termination of employment, the following terms and

conditions will apply:

…

(b) The Corporation may terminate your employment without cause at any

time by providing you with notice or payment in lieu of notice, and/or

severance pay, in accordance with the Employment Standards Act of

Ontario.

(c) You agree to accept the notice or payment in lieu of notice and/or

severance pay referenced in paragraph 13(b) herein, in satisfaction of all

claims and demands against the Corporation which may arise out of

statute or common law with respect to the termination of your employment

with the Corporation [Emphasis Added].


Stevens v Sifton Properties Ltd., 2012 ONSC 5508

• The court agreed the clause attempted to contract out of the ESA and relied on

the last statement of the termination clause that the contractual entitlements were

“in satisfaction of all claims and demands arising out of statute or common law”

• Because the termination clause did not expressly address continuation of

benefits during the statutory notice period, the court deemed the entire clause to

be void and unenforceable.

• The issue is not whether the employer acted in compliance with the minimum

requirements pursuant to the ESA, but whether the wording of the termination

clause is in compliance with those minimum requirements.

SOME REPRIEVE FOR EMPLOYERS?

John A. Ford & Associates Inc. v. Keegan, 2014 ONSC 4989

• The contract contained a term entitling the company to terminate the

contract on 30 days' notice.

• At time of termination, company gave 30 days notice in accordance with

the agreement.

• Problem: At the 5 year mark, the provision of 30 days notice would

violate the ESA.


John A. Ford & Associates Inc. v. Keegan, 2014 ONSC 4989

“The employer who drafts an agreement prescribing a fixed notice

period, rather than one that increases with the employee’s years of

service, and who does not negotiate a new employment agreement when

the employee’s years of service entitles him/her to a longer period of

notice, assumes the risk that the clause will become invalid at that point

and that the common law will prevail to determine the period of notice

required. It is only invalid at that point and not invalidated from when the

contract was initially executed.”


Luney v. Day & Ross Inc., 2015 ONSC 1440

• The Plaintiff worked for an interprovincial trucking company subject to the

Canada Labour Code (“Code”).

• Employed for a total of 12 years.

• Employed pursuant to an employment contract with the following

termination provision:



If your employment is terminated for other than ‘just cause’...you will be entitled to two

weeks [sic] notice or pay in lieu of notice and a severance of one week’s regular pay for

each full year of service, less statutory deductions. The payments are not to exceed the

equivalent of 15 weeks [sic] pay.

It is understood and agreed that in the event the aforesaid notice and severance

entitlements are not in conformity with the notice and severance provisions prescribed by

the Canada Labour Code or other similar legislation, the statutory minimum’s [sic] shall

apply and be considered reasonable notice and severance....

The foregoing notice and severance payments will satisfy any and all obligations to you by

Day & Ross Inc. or any affiliated company arising out of or in any way connected with the

termination of your employment, including any obligations arising under the Canada Labour

Code and similar legislation for notice, severance pay or reinstatement.



• The Plaintiff brought a claim seeking a finding that the termination clause

was unenforceable on two grounds:

1. That it was ambiguous and therefore did not rebut the presumption

of reasonable notice at common law; and

2. That it violated the Code as it did not provide for benefits.



• Court held that the language in the termination provision was clear

and did rebut the common law presumption of reasonable notice:

“In this case, the Termination Provision states that the notice and severance

payments provided for “will satisfy any and all obligations owed to you

by……, including any obligations arising under the Canada Labour Code and

similar legislation…” As the motion judge found, this language is clear and

cannot be read as confined to legislative entitlements.”



• The court also rejected the Plaintiff’s argument that the failure to

mention benefits was fatal:

“The Plaintiff’s argument that the Termination Provision violates the Code

because it does not provide for the inclusion of benefits ignores the express

wording of the Termination Provision. It provides that if “the severance

entitlements are not in conformity with the…severance provisions prescribed

by the Canada Labour Code or other similar legislation, the statutory

minimums shall apply and be considered reasonable notice and severance”.

Thus, under the Termination Provision, if the Code entitles the Plaintiff to a

monetary value for his benefits, then he is to receive that compensation.”


WHERE DO WE STAND?

• Courts in Ontario do not look favourably upon any attempt or apparent attempt to

deprive an employee of his or her entitlements at law.

• Wright v. Rubicam decision remains relevant, but law developing.

• Termination provisions need to be carefully drafted and regularly reviewed.


RECOMMENDATIONS

• USE Employment Agreements.

• Draft Carefully.

• Use saving language.

• If the ESA provides for a greater right or benefit, the employee will receive

the entitlements pursuant to the ESA.

• Ensure intention not to contract out of the ESA is clear.

• Review and update regularly.

• Implement employment agreements throughout the workplace.


EXISTING EMPLOYEES

• How to introduce employment agreements for existing employees?

• Carefully and with consideration.

• Consideration

• Principle: each party to a contract must give and receive something in order to

make a contract binding

• If an employee is already working for an employer at the time of the

employment agreement, there is no “fresh” consideration and the contract is

void.


What is NOT effective consideration?

• An employee must receive something in addition to what he or she was

already entitled to in order for an employment contract to be bindings.

• “Past consideration is no consideration.”

• Continued employment alone is not sufficient consideration.

• The law does not permit employers to present employees with changed

terms of employment, threaten to fire them if they do not agree, and then

rely on the continued employment relationship as the consideration for the

new terms

• While an employer is entitled to say if you don’t agree with these new

terms, your employment will be terminated – the threat of termination must

be accompanied by an appropriate termination package.


What IS effective consideration?

• Examples include:

• Promotion, increase in salary, signing bonus, new bonus plan, incentive

compensation, cheque.

• Make sure the employment agreement clearly references and indicates the

consideration.

Thank You

Montréal Ottawa Toronto Hamilton Waterloo Region Calgary Vancouver Beijing Moscow London