Court of Appeal finds yet another termination clause to be unenforceable

Sep 17, 2019

In the recent decision of Andros v Colliers Macaulay Nicolls Inc., the Ontario Court of Appeal (“OCA”) found yet another termination clause to be unenforceable. In this decision, the OCA reaffirmed and clarified various principles surrounding the enforceability of such clauses. 

Facts

The employee, Demetri Andros, was terminated by a large commercial real estate company Colliers Macaulay Nicolls Inc. without cause. 

Mr. Andros brought an action for wrongful dismissal and claimed the termination provision in his employment contract was unenforceable as it attempted to opt out of the minimum standards set out under the Employment Standards Act (“ESA”). As such, Mr. Andros claimed he was entitled to “reasonable” notice of termination at common law. 

The Termination Clause

The termination clause stated: 

  1. Term of Employment

The company may terminate the employment of the Managing Director by providing the Managing Director the greater of the Managing Director’s entitlement pursuant to the Ontario Employment Standards Act or, at the Company’s sole discretion, either of the following:

  1. Two (2) months working notice, in which case the Managing Director will continue to perform all of his duties and his compensation and benefits will remain unchanged during the working notice period.  
  2. Payment in lieu of notice in the amount equivalent of two (2) months Base Salary.

The Trial Decision

The motions judge concluded that this termination clause was unenforceable because it could reduce “the benefits to which [the employee] could be entitled on termination to something less than he would be entitled to under the ESA.” because under option a. and b. Mr. Andros could receive less than his ESA entitlements. This was because the first part of the clause and provisions a. and b. were found to be separate provisions. Ultimately, if provision a. applied, Mr. Andros would not be entitled to ESA severance pay. Alternatively, if provision b. applied, he would receive neither ESA severance pay nor benefit continuation for the minimum ESA notice period. 

The Appeal Decision

The OCA stated that the motions judge did not err in finding the termination clause to be unenforceable. This court reiterated the presumption that a without cause dismissal will only be permitted if reasonable notice is provided to the employee. This presumption can however be rebutted “if the contract of employment clearly specifies some other period of notice, whether expressly or impliedly”. Where the presumption is not clearly rebutted, and no notice is provided the employee is entitled to pay in lieu of reasonable notice at common law. 

The OCA further reiterated that ESA standards cannot be contracted out of unless the employment contract provides for a greater benefit than that which is provided by the ESA. 

Moreover, termination clauses must be wholly enforceable; if any part of the termination clause does not comply with the ESA requirements, then the entire clause will be declared void.  

In this case, the OCA stated that the termination clause had two distinct parts: the first part of the clause and the remaining a. and b. portion. This was evidenced by the word “or” in the clause, specifically, “entitlement pursuant to the Ontario Employment Standards Act or at the employer’s sole discretion, either..” 

Accordingly, the termination clause required a choice between the two parts and the entitlement to the ESA standards did not carry over to provisions a. and b. The court further explained that an employee must know what their entitlements will be at the end of their employment as soon as they begin employment and the current termination clause did not allow for this. 

 

Lessons to be learned

1. Employers must be extremely careful when drafting employment agreements. This is particularly relevant when it comes to termination clauses which must be clearly in compliance with the ESA. If any part of the clause is ambiguous, the ambiguity will be resolved in favour of the employee. 

2. The entire termination clause must be compliant with the ESA. If any portion of the clause fails to comply with the ESA, then the entire clause will be deemed unenforceable.

3. Based on this case, it is risky for an employer to draft a termination clause that gives the employer the right to decide between different termination pay options. In particular, the OCA indicated that employees should be able to know what their entitlements at the end of their employment will be right from the beginning of their employment. We will update this blog if this decision is appealed.

 

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