New court case necessitates review of termination clauses in employment contracts

Sep 27, 2016

Some employment contracts have termination clauses which state that an employee will receive notice of termination “in accordance with the Employment Standards Act” or words to that effect. The purpose of this clause is to take away the employee’s right to common law reasonable notice of termination.

In 2000 an Ontario Superior Court judge concluded that this kind of language meant that an employer was only required to provide the employee with the minimum notice of termination stipulated in the Employment Standard Act.

Earlier this year, however, another judge of the Ontario Superior Court came to a different conclusion and found that this kind of language was not good enough to override the presumption that an employee is entitled to reasonable notice of termination. In Singh v Qualified Metal Fabricators Ltd., 2016 CarswellOnt 8795 a judge of the Ontario Superior Court of Justice was called upon to interpret the following termination clause:

“Termination: Start date to three months: this length of service is a probationary period and the employee is not entitled to any notice or salary in lieu of notice…Three months to one year – one-week notice. One year to three years – two weeks’ notice. Three years and over – one week notice for each year of employment to a maximum of eight weeks. This policy shall be maintained in accordance with the Employment Standards Act.”

 The judge concluded, among other things, that because the contract did not state that the employee was giving up his right to common law reasonable notice of termination then the clause did not limit his right to the minimum notice provided for under the ESA. As a result, the judge concluded that the employee who was terminated after almost four years’ service was entitled to four months’ reasonable notice as opposed to the four weeks’ notice of termination this above-noted clause suggests he was entitled to receive. He specifically rejected the approach adopted by the judge in the 2000 decision.

 If other judges follow the Singh decision, then some termination clauses that were considered enforceable will no longer be legally enforceable.

 Lessons to Be Learned

  1. All new employees should be required to sign an employment contract with an enforceable termination clause. In the Singh case, if the termination clause had been enforceable then the employer could have reduced its obligation to provide notice of termination from four months (ie. 17.3 weeks) to 4 weeks.
  2. Employee lawyers are increasingly attacking the enforceability of termination clauses. In fact, I am speaking at an employment law conference in October about the different ways that employee lawyers are attacking termination clauses.
  3. Given the decision in Singh, and the propensity of employee lawyers to attack the enforceability of termination clauses, employers should consider having an employment lawyer review their existing termination clause to ensure that it will withstand judicial scrutiny.

For over 25 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]

The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.

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