The Danger of Termination Clauses

As we have written about in the past, termination clauses limit employee rights. The difference in what an employee receives when terminated can vary significantly between a contract with a termination clause, and one without. See here to learn more.

Despite the important role these clauses play, the law interpreting them continues to be in flux. Several decisions tell us that a termination clause should inform the employee that her benefits will continue for the statutory notice period under the Employment Standards Act.  See here to learn more about these cases.

However, while a termination clause ought to describe that the employee is entitled to the continuation of benefits after termination, failure to do so will not necessarily render it unenforceable.

A 2016 decision reconfirms that principle.

The Case

In Wood v. Fred Deeley Imports Ltd., the employee received an offer letter before starting a new job.  She signed the letter and began her position.  The offer letter, which is a contract, had a termination clause that said the employer was entitled to:

terminate your employment at any time without cause by providing you with the two weeks’ Notice of Termination or pay in lieu thereof for each completed or partial year of employment with the company.

The employee argued that because the termination clause did not mention the continuation of her benefits it was not enforceable.

The court disagreed.  It relied on an Ontario Court of Appeal decision from 2005 called Roden. In that decision, the Court of Appeal held that where a termination clause was silent about the continuation of benefits, it was deemed to incorporate those benefits into the employment contract.  So, not mentioning benefits was not a problem.

In Wood, the court agreed and found the termination clause above was enforceable.

Lessons

Employees must be careful when signing an offer letter or employment contract.  If it contains a termination clause, it may significantly limit what you can get as notice of termination or pay in lieu of notice. It is a good idea to speak to an employment lawyer and review your contract in full before signing.

If you would like to speak to a lawyer at MacLeod Law Firm, you can reach us at [email protected] or 647-204-8107.