June 12, 2024
Am I Valid? Unpacking Termination Clauses in Employment Contracts
As a general principle, if your employment is terminated without cause, you are entitled to reasonable notice of that termination. The length of notice you are entitled to will depend on various factors, including your length of service, character of your employment, your age, and the availability of similar employment in the current economic climate.
Instead of providing reasonable notice of termination, an employer can provide payment in lieu of notice, often referred to as severance. For example, if you are entitled to six months of notice regarding the termination of your employment, your employer might decide to terminate your employment effective immediately, and pay you out what you would have earned over the six month period.
If you are dismissed from your employment without being provided reasonable notice or payment in lieu of notice, you may have a claim for wrongful dismissal.
However … your employer can limit the amount of notice you are entitled to receive. This is most commonly done at the time of entering into the employment relationship, through a term in the employment contract (“Termination Clause”). By including a Termination Clause in the employment contract, an employer may be able to restrict the amount of severance owed.
What happens if you receive a severance offer that is underwhelming, but complies with the Termination Clause in your employment contract? Is there anything that can be done?
The answer depends on whether the Termination Clause is valid.
The validity and enforceability of Termination Clauses have been subject to rigorous examination within the Canadian legal landscape. There is a growing body of case law where Termination Clauses have been struck down by Courts as void or unenforceable.
Below are some of the reasons why you may be able to challenge a Termination Clause that purports to limit your severance:
1) The Termination Clause allows the employer to give notice of termination which does not comply with the minimum notice required by legislation.
In Alberta, the applicable legislation is the Employment Standards Code, RSA 2000, c E-9 (“ESC”). The ESC sets out the minimum notice requirements, in section 56, that an employer must provide to an employee who is terminated without cause.[1]
A Termination Clause cannot limit an employee’s notice period to a length of time shorter than the minimum requirements outlined in s. 56 of the ESC.
An example of this can be seen in the case Lovely v Prestige Travel Ltd., 2013 ABQB 467. An employee was terminated without receiving any notice or severance. The employer argued that they could terminate the employee without notice or severance because of an agreement between the employer and the employee. The Court held that the agreement was void, because it did not comply with the minimum requirements of the ESC.
2) The Termination Clause is not clear enough to limit your severance.
Courts closely scrutinize the language used in Termination Clauses. Ambiguity or overly broad language will often lead to interpretations that are unfavorable to employers. Termination Clauses that attempt to limit entitlements without clear and express language are vulnerable.
In Bryant v. Parkland School Division, 2022 ABCA 220, an employer argued that a Termination Clause limited the required notice to only 60 days. The Termination Clause provided that the employer could terminate by giving “sixty (60) days or more written notice”. The Alberta Court of Appeal found that the words “60 days or more” did not unambiguously limit the employees right to common law reasonable notice, as it did not impose an upper limit, and did not suggest that 60 days was the maximum notice to which the employee was entitled.
In Holm v. AGAT Laboratories Ltd., 2018 ABCA 23, the Termination Clause stated that if the employee was terminated without cause, the employer would give notice of termination or severance equal to the “applicable notice period … in accordance with the provincial legislation for the province of employment.” The employer argued this Termination Clause meant it needed to provide the minimum notice under the ESC, and nothing more. The Alberta Court of Appeal held the wording in the Termination Clause did not clearly restrict the notice to only the minimum under the ESC. Instead, the Termination Clause meant the employee would be entitled to severance that was equal to “at least” the minimum notice requirement in the ESC.
3) The Termination Clause offends some other provision in the employment standards legislation.
Although the two most common reasons for invalidity in Termination Clauses are set out above, there are several emerging authorities that expand on the possibilities, creating hope for employees. As Lloyd Christmas said: “so you’re telling me there’s a chance”.
In Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158, the Court held a Termination Clause was invalid because the clause attempted to contract out of the employer’s legislated requirement to contribute to the employee’s benefits plan during the notice period.
In Waksdale v. Swegon North America Inc., 2020 ONCA 391, the Court found that the entire Termination Clause was void and could not be relied on because it was contrary to the employment standards legislation in relation to termination “for cause”. Even though the employee had actually been terminated “without cause”, the fact that there was some part of the Termination Clause which did not comply, resulted in the entire provision being void and unenforceable.
In Celestini v. Shoplogix Inc., 2023 ONCA 131, the Ontario Court of Appeal held that a Termination Clause was unenforceable because the duties and responsibilities of the employee had changed fundamentally from the time the employment contract was signed, twelve years earlier.
In the recent decision of Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029, the Termination Clause was found to be unenforceable for a number of reasons, including that the “for cause” section imposed a lesser standard than required by legislation, and because the “without cause” section required only payment of base salary, as opposed to all regular wages (as required by legislation).
This is not an exhaustive list of cases, and new jurisprudence continues to emerge.
While Termination Clauses serve a legitimate purpose in delineating rights and obligations in employment relationships, their enforceability hinges on many factors including compliance with statutory standards, clarity of language, fairness, and whether the circumstances have fundamentally changed since the time of the employment contract.
DISCLAIMER: This publication is not legal advice and should not be relied upon as legal advice. While we intend to provide generalized information that is accurate as at the date of publication, it is possible that the information contains errors or omissions. We disclaim any liability for errors or omissions. Actions taken, or not taken, in response to legal concerns should be guided by individualized legal advice provided within a solicitor client relationship. The creation of a solicitor-client relationship can be discussed upon direct contact with a lawyer.
[1] These notice requirements are as follows:
(a) one week notice, if the employee has been employed by the employer for more than 90 days but less than 2 years,
(b) 2 weeks’ notice, if the employee has been employed by the employer for 2 years or more but less than 4 years,
(c) 4 weeks’ notice, if the employee has been employed by the employer for 4 years or more but less than 6 years,
(d) 5 weeks’ notice, if the employee has been employed by the employer for 6 years or more but less than 8 years,
(e) 6 weeks’ notice, if the employee has been employed by the employer for 8 years or more but less than 10 years, and
(f) 8 weeks’ notice, if the employee has been employed by the employer for 10 years or more.
Please note that JSS Barristers insights are provided for informational purposes only. They are not intended as legal advice or a legal opinion. Please contact authors or JSS Barristers if you would like to obtain legal advice on this or other legal issues.