Another week, another termination clause found to be unenforceable. As we have written before, termination clauses can have a significant effect on how much you receive in terms of notice or pay-in-lieu-of notice upon termination. This is because there is a presumption at law that an employee is entitled to common law notice upon termination without cause. However, an employer can enter into an agreement with an employee to contract out of providing common law reasonable notice, by specifying some other period of notice as long as it complies with the statutory minimums provided in the Employment Standards Act (“ESA“).
The difference between common law reasonable notice and statutory minimum notice can be large in some cases. Therefore, when a termination clause is present in a contract, it will be heavily scrutinised, as it was in Movati Athletic (Group) Inc. v Bergeron.
In this case,
Movati Athletic Inc. may terminate your employment without cause at any time during the term of your employment upon providing you with notice or pay in lieu of notice, and severance, if applicable, pursuant to the Employment Standards Act, 2000 and subject to the continuation of your group benefits coverage, if applicable, for the minimum period required by the Employment Standards Act, 2000 as amended from time to time.
After 16 months of employment,
The motion judge noted that the wording did not contain any explanation or warning. She noted that if the termination provision had contained words such as “upon termination, severance, if applicable will be paid only pursuant to the ESA… only for the minimum period required by the ESA”, that language would have clearly rebutted the presumption of reasonable notice at common law.
The employer appealed the motion judge’s decision to the Divisional Court. Interestingly, the parties agreed that the termination clause is enforceable as it meets the minimum requirements set out in the ESA. The motion judge acknowledged that employers can rebut the presumption of reasonable notice by clearly agreeing to a different notice period provided that agreement complies with the minimum requirements set out in the ESA. However, the problem with the termination clause, according to the motion judge, was that it did not clearly rebut the presumption of reasonable notice.
The Divisional Court noted that while the words “pursuant to the ESA” may be interpreted to mean that the notice period in the termination clause complies with the minimum requirements in the legislation, they do not clearly provide that reasonable notice at common law no longer applies.
The Divisional Court also noted that Movati used different wording with respect to termination at different points of the contract. The probation clause in Ms. Bergeron’s agreement limited the notice of termination during the probationary period to “only providing you with the minimum notice necessary to ensure compliance with the ESA as amended from time to time.” So while the notice provision in the probation clause clearly limited Ms. Bergeron’s rights upon termination, the termination clause did not. Therefore, the Divisional Court agreed with the motion judge that the termination clause was not enforceable.
Lessons to be Learned
Given the ever-evolving nature of litigation surrounding termination clauses, and the number of creative loopholes employee counsel can craft, if you have been recently terminated, you should speak to an employment lawyer even if you signed an employment contract with a termination clause. If you would like to speak to a lawyer at the MacLeod Law Firm, you can reach us at [email protected]
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