Employment & Labour, Mediation

Mediation is safest way to handle termination pay grey areas

By AdvocateDaily.com Staff

Grey areas in the law surrounding termination clauses are great for mediators but bad for public policy, says Toronto employment mediator and arbitrator Barry B. Fisher.

Fisher, principal of Barry Fisher Arbitration & Mediation, tells AdvocateDaily.com that employers are highly incentivized to draft provisions limiting their employees’ entitlements on termination to minimums set out in the Employment Standards Act (ESA) because of the considerably more generous damages available according to the common law’s reasonable notice requirement.

For the same reason, employees have good reason to challenge those same clauses, he adds. The problem, says Fisher, is the lack of consistency in court decisions on the issue.

“It’s highly unpredictable as to which way a judge will go, and even at the Court of Appeal, the result depends very much on which panel you get,” he says. “From a public policy point of view, it’s ridiculous. And that’s because the courts have made it a mess.”

If there’s a silver lining, Fisher says it comes in his practice as a mediator, where his job is to facilitate a settlement between parties by exploiting the uncertainty in each of their positions.

“Legal controversy creates risk, which creates an incentive to settle,” he explains.

Fisher says the termination clause controversy dates back to a landmark 1992 decision of the Supreme Court of Canada, which 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.

The law provides for termination pay of between zero and eight weeks, depending on the employee’s length of service. Additional severance pay of up to 26 weeks may be available for employees with at least five years of service at companies whose aggregate salaries surpass $2.5 million annually.

By comparison, the typical maximum notice period under the common law can run as long as 24 months for very long-serving employees.

As with most types of contracts, Fisher says plaintiffs have two main ways to attack termination provisions— at the formation stage or in the language of the clause.

In terms of the formation stage, he says case law dictates that a termination clause will only be effective if it was entered into at the same time as the employment agreement. In situations where the basic terms of a contract are agreed informally over a dinner or with a handshake, Fisher says employers could run into trouble if they later attempt to have the worker sign a contract that departs too far from that initial agreement.

“The argument is that the deal is already made, and the employer can’t impose new terms on you without consideration,” he says. “If you’re doing it correctly, you make an offer of employment in a letter or email that sets out what is in the contract, so that the ESA termination clause is part of the deal.”

However, Fisher says the bulk of termination clause challenges focus on the language of the clause, building on a series of decisions that suggests any ambiguity should be construed in favour of the employee due to the generally one-sided nature of employment contracts.

He says a recent case — in which a panel of the Ontario Court of Appeal (OCA) laid out eight guiding principles for judges deciding employment contract matters — should have provided a measure of certainty on termination clauses. But it was a false hope, Fisher adds.

“Despite that, various levels of court have gone all over the map in deciding what’s a breach of the employment contract and what’s not,” he says.

Many attacks on termination clauses focus on the status of benefits during the period when employees receive termination pay, and Fisher says judges frequently go both ways on their enforceability.

For example, additional language suggesting benefits will be paid at the discretion of the insurance company was enough for at least one judge to invalidate a termination clause for ambiguity, while another concluded a similarly worded clause should stand.

Fisher says there is no shortage of untested arguments that could be used in future termination clause challenges, and ultimately, it may fall to the Supreme Court of Canada to offer its guidance or force Ontario’s Court of Appeal to stick to its own previous jurisprudence.

Practically speaking, Fisher says employers hoping to avoid a legal fight over these clauses can minimize the chance of a challenge by paying terminated employees some amount between the ESA minimums and typical common law damages.

“Almost of all these disputes arise because an employer insists on trying to keep their liabilities to the bare minimums required by the ESA,” he says. “As long as you’re a bit better than the Act, there’s a good chance you’re onside.”

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