The Everchanging Impact Of Termination Clauses On Your Entitlement Upon Termination
A termination clause is typically found in an employment contract. It often purports to limit your right to termination pay to the minimum amounts contained under the Employment Standards Act (the “ESA”). The law on what types of termination clauses are considered legally enforceable is constantly changing.
Why does this matter? Because if you can successfully prove that the termination clause in your contract is unenforceable, then you could be entitled to significantly more compensation than what is being offered in your current termination package.
This blog discusses Rutledge v. Canaan Construction Inc., 2020 ONSC 4246, a recent case that once again changes the way termination clauses are interpreted by the courts.
Chris Rutledge (“Mr. Rutledge”) was a construction employee employed at Canaan Construction Inc. (the “Company”). In October 2017, Mr. Rutledge was temporarily laid off by the Company. He eventually commenced a wrongful dismissal action.
The Company argued that Mr. Rutledge was not entitled to any damages for wrongful dismissal since his employment contract precluded him from receiving any notice or pay in lieu of notice. The Company also pointed to the ESA which states that construction employees are not entitled to notice of termination or termination pay. However, despite this clear exemption under the ESA, the court awarded Mr. Rutledge damages equivalent to 9.5 weeks of his salary.
The court stated that an employer cannot contract out of a protected employment standard under the ESA even if that particular standard does not yet apply to the employee or employer. Essentially, if a termination clause can be shown to potentially violate the ESA in the future, then it can be declared void and therefore legally unenforceable.
To this point, the trial judge stated that although Mr. Rutledge was a construction employee, there was always the possibility that his position could change in the future which would then entitle him to notice or pay in lieu of notice.
In addition, even though the Company did not currently meet the requirements to pay out severance pay, there was a possibility that the Company could grow in size, employing more than 50 employees and then discontinue its business or that the Company could eventually have a payroll of more than $2.5 million. In this case, Mr. Rutledge would be entitled to severance pay despite his position.
The court concluded that “even a potential violation of the ESA, no matter how remote, should be unenforceable”.
Lessons for Employees
The case law surrounding termination clauses is constantly changing, and judges are accepting new reasons why termination clauses in employment contracts should not be legally enforceable. For this reason, it is very important to reach out to an employment lawyer if you have been terminated and your employer is relying on a termination clause in your employment contract to limit your entitlements to the minimum amounts you are owed under the ESA. Otherwise, you could potentially be giving up a significant portion of your entitlements.