Many employers struggle to ensure that their employment contracts contain legally enforceable termination clauses. What may seem valid and enforceable at the time of signing can later be struck down when it’s tested, often years later, at the time of dismissal. Courts have increasingly invalidated termination clauses for even minor drafting flaws, and the list of reasons for doing so continues to grow.
Against this backdrop, the recent Ontario Court of Appeal decision in Bertsch v. Datastealth Inc. stands out. In a departure from the recent trend, the Court upheld the termination clause and found that it effectively limited the employee’s entitlements to only the minimum standards set out in the Employment Standards Act, 2000 (“ESA”). This decision is a valuable reminder that employers can limit termination obligations, if the contract is carefully and clearly drafted.
Termination Clauses
By default, when an employee is dismissed without cause, they are entitled to reasonable notice of termination at common law, which often significantly exceeds ESA minimums. An employment contract containing a termination clause can displace the employee’s entitlement to common law notice, provided that the termination clause does not provide the employee with less than their minimum ESA entitlements or otherwise breach the ESA.
There have been a significant number of cases in recent years in which termination clauses were found to be unenforceable, based on the specific language contained in the clause. When a termination clause is unenforceable, it is void for all purposes and the employee will be entitled to common law notice as if there was no termination clause.
Court of Appeal Decision of Bertsch v. Datastealth Inc.
The decision of Bertsch v. Datastealth Inc. is a somewhat rare example of an Ontario court upholding a termination clause and finding that it effectively limited an employee’s entitlements upon dismissal.
In that case, Mr. Bertsch was employed by the company for 8.5 months as its vice-president, earning $300,000.00 per year. Upon being dismissed without cause, he commenced a lawsuit against his employer, arguing that the termination clause in his contract was unenforceable. As a vice president, Mr. Bertsch’s common law entitlements may have been significant, despite his short period of service.
The termination clause in his contract stated:
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 Ontario Employment Standards Act, 2000 and its Regulations, as may be amended from time to time (the “ESA”), 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.
You understand and agree that compliance with the minimum requirements of the ESA satisfies any common law or contractual entitlement you may have to notice of termination of your employment, or pay in lieu thereof. You further understand and agree that this provision shall apply to you throughout your employment with the Company, regardless of its duration or any changes to your position or compensation.
The employer brought a motion for the court to interpret the termination clause. Mr. Bertsch argued that the termination clause was unenforceable as it was not explicitly clear that even if he was dismissed with cause, he could still have entitlements under the ESA as long as he was not “guilty of wilful misconduct, disobedience or wilful neglect of duty”.
The court disagreed, finding that the termination clause was clear and unambiguous, and was not a breach of the ESA. As a result, the court struck Mr. Bertsch’s lawsuit, and the decision was upheld by the Court of Appeal.
The takeaway is that the employer’s liability will be significantly different depending on whether there is an unenforceable termination clause, or an enforceable one like in the Bertsch case. The wording of the clause makes a very big difference.
Path Forward for Employers
The Court of Appeal’s decision gives employers a path forward, by identifying the type of language that can be contained in an enforceable termination clause.
However, it is important to note that even a termination clause that exactly matches the language in Mr. Bertsch’s contract can still be found to be unenforceable, for example:
- If there are other clauses in the contract dealing with termination, which themselves breach the ESA;
- If there are other documents forming part of the contract of employment (e.g. the bonus plan, the company handbook etc.) which breach the ESA; or
- The contract itself is unenforceable, such as where the employee did not receive valid consideration for signing the contract (e.g. signing on or after their first day of work).
Therefore, we strongly recommend that employers work with legal counsel to ensure that their contracts and policies are all properly drafted and implemented properly. The exact wording of termination clauses matters, and when done right, employers can significantly limit their liability.
Conclusion
The Bertsch v. Datastealth Inc. decision confirms that employers can lawfully limit termination entitlements when clauses are carefully drafted in compliance with the ESA and with clear, unambiguous language.
If you’re an employer, now is the time to review your employment contracts with legal counsel. We can help you prepare contracts that can significantly limit your liability.
For employees, this confirms the importance of scrutinizing your contracts to understand your legal entitlements. Whether you are presented with a new employment contract that you would like to review before signing, or you want to understand the implications of a previous employment contract that you signed, we are here to help.
As always, if you need legal advice or guidance tailored to your contract or situation, please feel free to contact us.
