Termination Clauses

Hi, it’s Stuart Rudner here with another Rudner Law video employment law update. 

So, today I want to talk about termination clauses. As regular readers and viewers will know, termination clauses have had an ongoing saga in our courts with people challenging them and trying to avoid the implications of what they signed, and as regular viewers and readers will know, this can have tremendous implications. 

By default, every employee is entitled to reasonable notice of dismissal, or pay in lieu thereof. While we always say the law is not one month per year, despite the common myth, that’s often not a bad starting point, and it gives you a sense of what we’re typically looking at. However, if you use a contract, you can displace that presumption of reasonable notice and have a provision which says the employee will get as little as the employment standards minimums. In some cases, that can be the difference between eight weeks and two years, so obviously the stakes are high and that’s why we’ve seen so many people challenging their termination clauses. The reality is over the last few years we’ve seen dozens of court decisions, and it’s been difficult to discern any real predictability or any real rules that we can rely upon consistently. There was a trend in recent years towards a more common sense approach which would favour employers, including the courts saying that courts should not strain to find ambiguity where there is none, because what the courts have also said, and they’ve said it for decades now is, to displace that presumption that the reasonable notice does not apply, there must be clear and unambiguous words, and the clause can’t breach the applicable employment standards legislation, or even have the potential to do so. 

The latest case is Alarashi and Big Brothers Big Sisters of Canada, and in that case there were three separate challenges made to the clause in question and the employer succeeded on two but, although sometimes they say two out of three ain’t bad, in this case two out of three means a loss for the employer. I’m not going to talk about the two where the employer was successful, but the key here is that there was a clause which said, and I’m going to read this verbatim: in the event that it becomes necessary to terminate your employment without cause, BBBST will provide you with such notice or payment in lieu of notice, or severance pay, that may be required to meet the requirements of the Employment Standards Act. The problem is the word “or”. What it should have said was “and”. In other words, they would provide whatever notice, termination pay, and severance pay was required by the Act. Because it said “or”, the court looked at this very closely, and essentially found that there were a few different ways to interpret the clause. One of those ways would be a breach of the Act because it would provide for notice or termination pay on the one hand, but not severance pay, which might be required in certain circumstances. We also have a contractual doctrine called Contra proferentem, which means that any ambiguity in a contract will be interpreted against the interests of the party that drafted it. So in this case, and in most cases, that’s the employer. And so in this case, there was ambiguity and a potential breach of the employment standards legislation, therefore the clause was found to be unenforceable. 

This is yet another reminder to employers that when you’re drafting contracts, and termination clauses in particular, it is critical that every word be chosen with care because in this case, a two letter word, “or”, was the downfall for this employer, who ended up paying far more severance than they thought they would have to, because they thought they had an enforceable contract. 

There’s a very simple way to avoid this problem. 

What we at Rudner Law have been doing for years is using saving clauses. A saving clause essentially says that no matter what the termination clause says, we will comply with the applicable employment standards legislation. What that means is that even if you make a mistake, and it breaches the Act, at the moment, you’ll be saved, and if the legislation changes in the future, which is quite possible, as we’ve seen in Ontario in the last couple of years, you’ll still be safe, because the clause will be interpreted so as to comply with legislation. Having that saving clause is critical, especially given the unpredictability of these cases, and the judicial interpretation of termination clauses. 

So we have one more case in the long line of cases discussing termination clauses. In this case, as I said, the employer succeeded on two grounds but lost on the third, which basically means that they lost. And one way to avoid that is saving clauses. 

If you have any questions, about termination clauses or contracts in general, come see us at Rudner Law, we’d be happy to help you. We engage in what we call an HR Checkup, in which we review contracts and policies, and we will help you to make them as strong and as strategic as possible. And if you’re an employee, and you’ve been let go, make sure that the contract you signed many years ago is actually enforceable, because you’d be amazed how often people assume that their contract limits their rights, when the reality is it’s not enforceable, as happened in the Alarashi case. 

Thanks for tuning in, have a great day.

Stuart Rudner

I am the founder of Rudner Law. In 2016, 2017, 2018, 2019 and 2020, I was selected by my peers for inclusion in ‘The Best Lawyers in Canada’ in the area of Employment Law and have been repeatedly named in Canadian HR Reporter’s Employment Lawyers Directory (a comprehensive directory of the top employment law and immigration law practitioners in Canada), and was also named one of Canada’s top Legal Social Media Influencers.