Will a termination clause be enforceable or will it be thrown out by the courts?

Termination Agreements

Farah v EODC Inc.

Will a termination clause be enforceable or will it be thrown out by the courts? Some readers will have reached the conclusion that this is simply a rule of the dice, and in some respects, they can’t be blamed; as I have written about on several occasions in recent years, the case law has gone both ways and in many cases, the results are difficult to reconcile.

Over the past few years, employment lawyers have written about this subject repeatedly, and the prevailing wisdom has been that the more detailed the clause, the better – that continuation of benefits during the notice period must be explicitly mentioned, that there must be reference to Termination Pay and Severance Pay. It has been recognized that even a potential breach of the applicable legislation would render the clause unenforceable, and that any ambiguity will work to the detriment of the employer since the common-law entitlement can only be displaced by clear and unambiguous wording which explicitly provides that the employee will not have any rights beyond those set out in the contract.

Many were of the view that wording providing that an employee will receive notice/pay in lieu of notice “in accordance” with the applicable legislation would not be sufficient to displace the common-law entitlement.  That makes sense, because saying they will be paid in accordance with the legislation does not rule out other payments. The question becomes how clearly the clause must state that the individual will only be entitled to the statutory minimum amounts in order to displace the common law once.

The recent decision of the Superior Court of Ontario in Farah v EODC Inc., 2017 ONSC 3948 will be welcome news for employers. In that case, the clause in question did not explicitly mention continuation of benefits, and did not explicitly reference the fact that the employee would not receive notice pursuant to the common law, or anything beyond statutory requirements. Nevertheless, the wording was found to be sufficient to displace the common law requirements.

Here is the wording of the clause in question:

At any time, following the conclusion of the Probationary Period, the Employer may terminate the Employee without just cause simply upon providing him/her with the entitlements prescribed in the Employment Standards Act, 2000 (“the Act”) or any amendments thereto. The Employee hereby acknowledges that he/she had the opportunity to review the relevant portions of the Act and/or to consult with legal counsel about their impact on his/her current entitlements upon termination of his/her employment.

It is one that many commentators would consider to be “arguably” enforceable – not bad, but it did  not include all of the aspects of the “perfect” clause. It does avoid the mistake of referencing the statutory requirements without saying that the employee will not receive anything further. That was good enough for the court in this case, which found that it was clear in establishing that the Company would provide notice as set out in the ESA, and that there was no obligation to spell all obligations out. As the Court wrote:

[57]  It is well established that the common-law presumption on termination only on reasonable notice is “rebuttable if the contract of employment clearly specifies some other period of notice, whether expressly or impliedly” (Machtinger v. HOJ Industries Ltd., 1992 CanLII 102 (SCC), [1992] 1 SCR 986, at p. 998).

[62] In line with this analysis, and following the remaining cases cited by EODC, the Court finds that the interpretation of the Termination Clause and its intention to provide the Applicant “with the entitlements prescribed in the Employment Standards Act, 2000” to be clear and unambiguous. Accordingly, the contractual term rebuts the common law presumption and prevails.

So what can you take from this? Again, we can conclude that these cases are difficult to predict. We can also conclude that some Judges will take a pragmatic approach and interpret the clause as the parties intended, despite imperfection. That is what the Ontario Court of Appeal did last year in Oudin v Le Centre Francophone de Toronto.

That said, employers are strongly advised to use the clearest possible language when attempting to limit an employee’s rights upon termination. And employees should not assume that they cannot challenge the clause they agreed to; in many cases, it will be unenforceable.

Stuart Rudner

I am the founder of Rudner Law. In 2016, 2017 and 2018, 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.