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Internal war at Court of Appeal breeds termination clause uncertainty

Two warring interpretive approaches to employment contracts are driving an inconsistency in the treatment of termination clauses by the Ontario Court of Appeal (OCA), Toronto employment mediator and arbitrator Barry B. Fisher tells AdvocateDaily.com.

Fisher, principal of Barry Fisher Arbitration & Mediation, explains that termination provisions have become the main battleground for the two approaches. Employers have been crafting ever more complicated and lengthy clauses designed to limit employee entitlements to minimums set out in the Employment Standards Act (ESA), which are often considerably less generous than damages available according to the common law’s reasonable notice requirement.

When it comes to interpretations of the clauses, Fisher says judges typically break it down into two camps.

In the first, decision-makers look to the intention of the parties to the contract, reasoning that the very existence of the clause suggests an intention to contract out of the common law.

However, judges taking the second approach look beyond the parties’ intentions, closely examining the wording for potential illegality or ambiguity to void the effect of a particular clause, opening up the path for the common law to apply.

Fisher says he is inclined to favour the latter method, which takes into consideration the inherent imbalance between the typical employee and employer.

He says most employees would have a hard enough time figuring out whether their work is regulated by federal or provincial law, let alone turning their mind to the rights they are giving up in the event of termination.

“Employment contracts are different from other forms of commercial agreement because one party has virtually no negotiating power or even any knowledge of the basics of the subject matter,” Fisher says. “How can someone give up something they don’t even know they have.”

He says the debate has a long history, with a key turning point coming in the early 1990s when the Supreme Court of Canada ruled that the presumption an employee is entitled to common law notice on termination without cause is only rebuttable by contractual provisions when they meet the minimum notice requirements set out in the ESA.

Since then, Fisher says judges have still found ways to uphold or void various versions of termination clauses. However, he says he thought the issue had finally been settled when the OCA released a 2017 decision, which leaned towards an employee-friendly approach to ambiguity and enumerated eight guiding principles for courts deciding employment contract matters.  

“The cases before this one tended to support employers, and I thought it would radically change how future judges look at these things, but unfortunately it hasn’t,” he says. “In my view, it is not being followed consistently.”

Within months, a differently constituted panel of the appeal court swung the pendulum back in favour of employers, ruling that an apparently troublesome termination clause was, in fact, unambiguous, and should be upheld.

“The courts keep going back and forth between the contractual and statutory analysis,” Fisher says.

Ultimately, he says it may fall to the Supreme Court of Canada to settle the debate once and for all, and give both lawyers and judges some further guidance on how employment contracts should be interpreted.  

“I don’t know if they’ve had the opportunity yet, but I hope someone will take their case to that next level,” Fisher says. “Until then, we’ll probably continue to see the appeal court going back and forth, and that unpredictability is not good for anyone, except maybe for me, because I get to mediate the same case day after day.”

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