Feb 22, 2017

How to get around a termination clause

You may have signed an employment contract with a termination clause. You may be wondering whether you are only entitled to the amount set out in this termination clause. The short answer is…it depends. There are a number of ways to attack a termination clause. If successful, you could be entitled to more termination pay than you are entitled to receive under the termination clause. This blog discusses one such case.

Holmes v Hatch Ltd.

In this case, Mr. Holmes was employed by Hatch Ltd. for approximately 17 years before he was dismissed without cause. Mr. Holmes had signed an employment contract with a termination clause which provided that:

“In the event that we must terminate your employment for reasons other than cause, you will receive a termination package which takes into account your years of service, position and age. As a minimum the amount of combined notice and severance you will receive will equal 4 weeks plus one week for each completed year of service, or such greater amount as may be required by statute at the time of termination.

Hatch Ltd. provided Mr. Holmes with his statutory entitlements. The court found that Hatch Ltd. did not consider the factors of age, service and position when deciding the content of Mr. Holmes’ package. Mr. Holmes argued that Hatch Ltd. fundamentally breached the employment agreement, and was thereby liable for wrongful dismissal at common law, rather than the damages to which he was entitled under his contract.

The court agreed with Mr. Holmes and found that Hatch Ltd. was precluded from relying on the termination clause it breached.

However, this decision is in direct contradiction with Simpson v Global Warranty Management Corp., a 2014 decision from the same court. In this case, the court found that the employer could still rely on the “without cause” termination provision in the contract, despite its contractual breaches and the employer’s failure to comply with the terms of the contract on a timely basis.

Lessons to be Learned

Given how conflicting these decisions have been, it is difficult to predict whether the courts will find an employer is entitled to rely on a termination clause to minimise its damages. If you have recently been terminated, you should speak to an employment lawyer regardless of whether there is a termination clause in your employment contract. If you would like to speak to a lawyer at MacLeod Law Firm, you can reach us at [email protected] or 647-204-8107.


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