How reliable is your termination clause? Ontario court leaves employees and employers wondering
By Howard Levitt
At the moment, it’s difficult for employers to rely on a termination clause.
Considering the spectre of ever-increasing severance for terminated employees, these clauses may sound like a gift to employers: insert a single clause and dismissed employees are limited to the minimal amounts required by employment standards legislation.
Sound too good to be true? That’s because it is. If an employer gets the wording just a little bit wrong, the provision is suddenly unenforceable and the company is on the hook for months of additional severance.
Now, thanks to a recent decision from the Ontario Court of Appeal, things might be changing, but it’s nearly impossible to tell whether it’s for the better, or has just become more confusing. Unless the Supreme Court steps in, the law in this area isn’t going to become any clearer.
A recent decision from the Ontario Court of Appeal has left employers and employees wondering how reliable a termination clause is.
For employers, any termination clause should clearly restrict an employees entitlement, with every attempt to ensure that the clause is as unambiguous as possible.
Employees, should double check that employment contract before signing it, and see a lawyer. It is best to know the worst case scenario when you agree to the terms of employment.
The result of the decision is that no one — not even lawyers — can predict whether a termination clause will be enforceable.
This is a serious problem for employers and employees: How can you rely on a contract if you can’t be sure whether it is even enforceable? Why negotiate when neither party can be certain if it is going to stand up in court?
Several months ago, François Oudin argued before the Ontario Court of Appeal that the termination clause his employer, Centre Francophone de Toronto, included in his contract was unenforceable. The clause, he pointed out, only granted him notice under the Employment Standards Act, and the employer was therefore trying to escape paying him the other requirements of the ESA, such as severance pay.
Any lawyer, looking at the case, would have told you that Oudin had a good argument. Generally, if a court thinks an employer is even trying to wiggle out of employment standards legislation, it shows no mercy. It’s a very delicate and precarious balance: miss one thing, and the terminated employee is entitled to full wrongful dismissal damages.
Unexpectedly, though, the Ontario Court of Appeal didn’t agree with Oudin, which is what’s leaving lawyers in a sea of confusion. Why was Oudin’s termination clause enforceable when so many others have not been? The only people who know are the Court of Appeal, and they, unusually, didn’t explain.
For employees and employers wondering about the future, unless the Supreme Court of Canada intervenes, it’s going to be guesswork and ensuing unpredictability as to whether your carefully negotiated termination clause is something either party can rely on.
I should declare my interest. I provided an affidavit as an expert in support of leave to appeal. I did so because this decision leaves the law with no predictability, and that is costly to all parties.
For employers, Oudin may signal good news and more leniency from courts for termination clauses. Or it may simply be a fluke.
Although Oudin is an Ontario case, the confusion about termination clauses doesn’t stop at provincial borders. Unless a province or territory has specific legislation about termination clauses — as is the case in Quebec — this is a problem that spans from coast, to coast, to coast.
So how should employers and employees proceed?
For employers, any termination clause should clearly restrict an employee’s entitlement, with every attempt to ensure that the clause is as unambiguous as possible. Even with Oudin, employers should seek legal advice to ensure their termination clauses include all the necessary elements of legislative severance and termination pay.
Employees on the other hand, should double check that employment contract before signing it, and see a lawyer. It’s best to know the worst case scenario when you agree to the terms of employment.