Termination Clauses: Are They Enforceable?

Apr 21, 2014

Employees often come to us to review their severance packages. Assessing whether a severance package is fair often depends on whether or not there is a termination clause in an employment contract.

We carefully review the circumstances surrounding the signing of any such contract to determine whether a court will enforce the termination clause.

Here are three of the ways we might attack a termination clause:

1.     Non-compliance with the Employment Standards Act (ESA)

In two recent decisions, Ontario Superior Court judges held that two termination clauses found in employment agreements were not enforceable.  The employment contracts provided that the plaintiffs would receive certain payments at the time of termination.  The contracts also provided that these payments were the plaintiffs’ complete entitlement to compensation at termination. The court held that because the contracts did not provide for the continuation of benefits during the notice period, as required by the ESA, the termination clauses were unenforceable. For more about employment standards, see here.

  2.    Duress and Unconscionability

Duress and unconscionability apply to the context of an employee signing a contract. If the employee is not familiar with business practices or contracts and is presented with a job offer, he should be given time to review it and seek legal advice.  If the employee is required to sign the contract immediately or risk losing the job offer, we would argue that upholding the contract would be unconscionable.

This is particularly true when there is an imbalance in bargaining power caused by employee’s ignorance of business or bargaining. In that case, the courts will sometimes find that the transaction was improper. The courts do not look favourably on an employer taking advantage of an employee’s lack of knowledge to limit the employee’s rights at termination.

3.    Post-employment Contracts

The legal principle of consideration applies to employment contracts. Each party must give something in order for the contract to be valid.  In a typical employment relationship, the employee may sign away certain rights in exchange for the employer offering her a position.

However, the employee has already started the position, she cannot sign away her employment rights without receiving something in exchange.  Continued employment is not sufficient.  So, unless the employer offers the employee a higher salary, an increased bonus, increased benefits or some other form of compensation, it is likely that the courts would not find that employee’s contract, or its termination clause, to be enforceable.

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

http://advocatedaily.com/2014/04/termination-clauses-are-they-enforceable/

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