Employment Contracts: They Should Keep Giving and Giving

Feb 19, 2019

I trumpet the benefits of employment contracts every chance I get. I often write and speak about these benefits.

Two Case Studies

In the last two weeks, I received calls from two clients who benefitted from an employment contract that I wrote several years ago.

Right to Temporarily Lay off

The first client operates a couple of retail stores. There was a fire in one of the stores and the owner called me with questions about her obligations to pay staff while the store was closed.

This client operates a seasonal business so I included a clause in her contract that gave the employer the right to temporarily lay off employees. So the employer has temporarily laid off the affected employees while the store was closed. It did so with no advance notice and the employer has no obligation to pay the employee during this layoff.

Right to Provide the Minimum Notice of Termination Required by Law

The second client operates a professional services business where employee turnover is very low. As a result, the owner employs several long term employees. Several years ago, after attending one of my seminars, he asked me how to get his staff to enter into contracts of continued employment. In exchange for a signing bonus, the employees agreed to sign a contract with the same terms and conditions of employment so that the terms of employment were consistent amongst all employees. One of these terms was a termination clause.

The client called me because she had been having serious problems with one long service employee who was causing staff morale problems and who was the subject of several customer complaints. The owner wanted to discuss whether the employee’s bad behaviour was just cause for termination. Doing so is very difficult for a long-term employee with no written disciplinary record. When I reminded her that she could terminate the person’s employment by providing him with 8 weeks termination pay (even though the employee had been employed for 15 years), he decided to terminate the employee without cause. Without this clause in the employee’s contract, the owner would likely have been obligated to provide the employee with more than 60 weeks’ notice of termination.

Click here for a link to a description of our fixed fee employment contract service.

Lessons to Be Learned:

  1. Employment contracts should increase an employer’s legal rights.
  2. Employment contracts should save an employer money in different situations.
  3. Employment contracts should reduce or eliminate an employer’s legal liability in different situations.

There are many ways to attack the termination clause in an employment contract. 

I am now surprised if employee counsel does not claim that their client’s  termination clause is not legally enforceable - usually because the termination clause does not allegedly comply with the Employment Standards Act.

This blog considers a case, McKercher v Stantec Architecture Ltd., 2019 SKQB 100, where an employee successfully attacked the termination clause in his contract because he did not explicitly agree to it after being promoted. 

The Facts

In 2006, Mr. McKercher commenced employment as a staff architect. The termination clause in his employment contract stated: 

Termination other than for cause will be with notice or pay in lieu of notice, based on your length of service. If the Employer terminates your employment for other than just cause you will receive the greater of:

  1. a)   Two weeks notice or pay in lieu of notice during the first two years of employment increasing by one week for each additional completed year of employment to a maximum of three months notice or pay in lieu of notice.


  1. b)   The minimum notice of termination (or pay in lieu of notice) required by applicable statutes.

Eleven years later, when Mr. McKercher was employed as a Business Centre Sector Leader, his employment was terminated. The employer paid him the three months termination pay he was owed under his employment contract.


Another way to attack a termination clause: What is the changed substratum doctrine?

An Ontario judge in a 2012 case, MacGregor v National Home Services, 2012 ONSC 2042 (CanLII), described this legal doctrine as follows: "The changed substratum doctrine … provides that if an employee enters into an employment contract that specifies the notice period for a dismissal, the contractual notice period is not enforceable if over the course of employment, the important terms of the agreement concerning the employee’s responsibilities and status has significantly changed."


The rationale for this doctrine has been described by one judge, Schmidt v AMEC Earth & Environmental Ltd., 2004 BSCS 2012 (CanLII), as follows: "In my view, it was incumbent on the defendants to advise Mr. Schmidt that they intended to continue to rely upon the termination provision set out in the Agreement when substantial changes in his employment occurred. This would have allowed him to consider the matter and to negotiate for other terms. If the defendants wished to continue to rely on the termination provisions there ought to have been a ratification of the provisions as the nature of Mr. Schmidt’s employment changed."



The judge hearing this case relied on the following factors when deciding not to enforce the termination clause in the employment contract: ”...there is no evidence that (the employer) made it clear to the (employee) that the notice of termination provisions were intended to apply to the positions to which he was promoted. The employment agreement contains no express wording to this effect, nor does it contain any wording to support the inference of such an intent. Further, and in keeping with the analysis in Schmidt, the Court received no evidence that, as it promoted the plaintiff, SAL reasserted its understanding and expectation that the notice of termination limit would remain in effect.”


Lesson to be learned:

An employer should make it clear that the termination clause in an employment contract applies when an employee is promoted. This expression of this intent should be in writing and should be clear and unambiguous. I recommend that an organization’s employment be reviewed by an employment lawyer every year or two. If your employment contract does not address this issue then think about doing so the next time it is reviewed.


For 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]

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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