Oct 6, 2020

(Another) Judge Refuses to Enforce a Termination Clause in an Employment Contract

This case is a head scratcher.

 

The Facts

Canaan Construction Inc. employed Chris Rutledge (“Mr. Rutledge”) as an apprentice in the construction industry. There was no dispute that Mr. Rutledge worked as a construction employee in the construction industry. 

The employee’s last continuous period of employment with the employer was from November 2015 until he was temporarily laid off in October 2017. He found another job in December 2017. 

 

The Law 

Section 2(1) 9 of Regulation 288/01 under the Employment Standards Act (“ESA”)  states that construction employees are not entitled to any notice of termination or termination pay under the ESA. 

 

Termination Clause in The Employment Contract

The Employee may be terminated at any time without cause upon being given the minimum periods of notice as set out in the Employment Standards Act…. The Employee acknowledges that pursuant to the Employment Standards Act they are not entitled to any notice or time in lieu thereof due to the nature of their job and as such they are entitled to absolutely no notice or pay and benefits in lieu thereof upon termination.

 

The Issue

Was this termination clause legally enforceable?

 

The Trial Decision

The small claims court judge concluded the termination clause was not enforceable because the clause stated he was not entitled to benefits under s. 60(1)(c) of the ESA during the ESA minimum notice period, and awarded him 9.5 weeks termination pay which presumably was the lost income from the date of layoff until he started his new job. 

The trial decision makes no sense because as a construction employee Mr. Rutledge was not entitled to any notice of termination under the ESA. So he was not entitled to any benefit continuation under section 60(1(c). 

 

The Appeal decision

The Superior Court of Justice judge hearing the appeal relied on two different reasons for not enforcing the termination clause.

One, because there is a possibility that Rutledge’s position at Canaan could change to something other than a construction employee and, he would therefore be entitled to notice of termination under the ESA, the termination clause should not be enforced. Recall that this employee was an apprentice in a trade in the construction business. 

Two, if the employer grew in size, employing more than 50 employees and then discontinued its business, or else had a payroll of more than $2.5 million (and the employee was terminated after more than 5 years of employment), the employee would be entitled to severance pay under the ESA. I note that the termination clause does not actually state the employee was not entitled to severance pay. It states he was “entitled to absolutely no notice or pay and benefits in lieu thereof upon termination.”

In other words, the judge concluded that if there is a theoretical breach of the ESA under any employment scenario for this employee then the termination clause should not be enforced.  

 

Lessons to be Learned:

  1. Lawyers representing employees continue to think of new ways to attack termination clauses that purport to limit an employee’s entitlements to the minimum notice of termination provisions set out in the ESA. And judges continue to accept these arguments.

2. Employers should have an employment lawyer review the organization’s termination clause on a regular basis.

3. If an employee commences litigation and claims your organization’s termination clause is not legally enforceable then obtain an opinion from an employment lawyer to determine whether entering into a confidential settlement makes sense before incurring the time and cost of litigation – especially if the case is commenced in small claims court. In this case, the court ordered the employer to pay the employee 9.5 weeks pay which I suspect for an apprentice was less than $10,000. The legal costs for the trial and the appeal would be much greater than $10,000 and now every employee at the employer knows that the termination clause in their contract is not legally enforceable. Unless the appeal decision is further appealed and overturned!

 

For over 30 years, Doug MacLeod of the MacLeod Law Firm has been advising employers on all aspects of the employment relationship. If you have any questions, you can contact him at 416-317-9894 or at [email protected]

 

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