Severance Package and Termination Clauses

Apr 14, 2015

Employees often come to us to review their severance packages. When we review a severance package, one of the questions we ask is whether there is an employment contract with a termination clause. We carefully review the circumstances surrounding the signing of any such contract to determine whether a court will enforce the termination clause.

There are several ways to attack a termination clause, as discussed here.

In the past few years, several Ontario court decisions found that termination clauses which did not provide for the continuation of benefits during the notice period were unenforceable, including in this 2014 case.

However, in a recent decision, the Ontario Divisional Court addressed the issue of termination clauses.  In that case, the employee had been fired and offered a severance package. The employer argued that the severance package was consistent with the employment contract.  The employee argued that the termination clause in his contract was not enforceable because it did not provide for the continuation of benefits.  The court held that while the termination clause did not clearly state that benefits would be continued during the statutory notice period, it was broad enough to include their continuation.  The Court enforced the termination clause.

Lessons for employees:

1. Employment contracts can affect your rights if you are fired. You should have a lawyer review your employment contract in advance of accepting a position.

2. The law on the enforceability of termination clauses is mixed and each case has different facts. If you are fired and provided with a severance package, you should have a lawyer review the offer to see whether it is fair.  This is true even if you have a termination clause in your contract because there may be ways to argue that the termination clause is not enforceable.

If you have been terminated and would like to speak with a lawyer about your severance package or your legal rights, contact us at [email protected] or 1-888-640-1728 (toll free) or 647-633-9894 (within the GTA).

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