We’ve written before on the importance of termination clauses in employment contracts. A recent case from the Ontario Superior Court of Justice is a good example of not only including a termination clause in an employment contract, but ensuring that it abides by minimum standards set out by the law.
Carpenter v Brains II, Canada Inc.
Between 1996 and 2007, Ms. Carpenter worked at a company that was eventually sold to Brains II. In 2007, Brains II extended a written employment contract to Ms. Carpenter, which she accepted. Ms. Carpenter worked at Brains II until May 28, 2014, when she received notice that her employment would terminate effective July 23, 2014. She received eight weeks’ working notice and 18 weeks’ severance pay in accordance with the Employment Standards Act.
Ms. Carpenter commenced a wrongful dismissal action seeking damages for the income she lost. Brains II argued that her employment contract precluded her from claiming extra damages. The contract stipulated that Brains II would provide notice or salary in lieu thereof and severance pay under the ESA, and that she was not entitled to any other compensation by reason of the termination. Ms. Carpenter argued that the termination clause was unenforceable as it did not mention benefit continuance during the notice period, which does not comply with the ESA.
The court found that the termination clause provided the employee with less than her minimum statutory entitlements and was therefore null and void. Due to the way the contract was drafted, the fact that the termination clause provided for salary in lieu of notice and made no mention of benefit continuance lent itself to the interpretation that the employer was attempting to limit the employee’s entitlements upon termination in contradiction with the ESA. Therefore, Ms. Carpenter was entitled to extra damages.
Lessons to be learned
- It is a good idea to require new employees to sign an employment contract with a termination clause.
- Even if the employment contract includes a termination clause, it may be unenforceable if it is not drafted properly.
- You should consult with a lawyer that is familiar with the nuances of drafting and employment law to ensure your employment contract is valid and enforceable.
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.
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