Another Termination Clause Doesn’t Withstand Scrutiny

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, Ms. Bergeron’s employment with Movati Athletic (Group) Inc. (“Movati”) was governed by a written employment agreement. She reviewed the agreement before she began working, and had an opportunity to obtain legal advice before signing the agreement. The termination clause in her employment agreement provided as follows:

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, Ms. Bergeron’s employment was terminated. Movati agreed to pay Ms. Bergeron two weeks’ pay in lieu of notice pursuant to the minimum period required by the ESA. In fact, Movati accidentally paid Ms. Bergeron four weeks’ pay in lieu of notice. Ms. Bergeron was paid her outstanding vacation and her group benefits coverage was maintained for the two weeks following her termination. As Ms. Bergeron had less than five years of service, she was not eligible for severance pay under the ESA. Ms. Bergeron found alternative work on January 1, 2017, just over four weeks after she was terminated.

Ms. Bergeron successfully filed a motion for summary judgment, in which the motion judge held that Movati could not rely on the termination clause in her employment agreement to contract out of its obligations under the common law (which usually exceed an employee’s entitlements under the ESA). The motion judge held that for a termination clause to displace an employee’s rights under the common law, a high degree of clarity is required, and any ambiguity will be resolved in favour of the person who did not draft the agreement (i.e. usually the employee).

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. Ms. Bergeron was awarded 5 weeks’ notice, her bonus for 2016, her prorated bonus for 2017 and damages for the lost employment benefits.

The Appeal

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]