Employment & Labour

Court invalidates termination clause in employment contract

By Arthur Zeilikman

The Ontario Divisional Court has affirmed the lower court’s decision in Miller v. A.B.M. Canada Inc., 2015 ONSC 1566. The appeal was by the employer from the judgment reported in Miller v. A.B.M. Canada Inc. 2014 ONSC 4062 allowing an employee’s action for damages for wrongful dismissal.

In Miller, the employee signed an employment contract with a termination clause that stated:

“Regular employees may be terminated at any time without cause upon being given the minimum notice prescribed by applicable legislation, or by being paid salary in lieu of such notice or as may otherwise be required by applicable legislation.”

At trial, the employee argued that the termination clause of his employment contract was unenforceable because it was contrary to s. 5(1) of the Employment Standards Act, S.O. 2000, c. 41, (“ESA”) with the result that that the employee’s entitlements for compensation upon termination should be in line with the common law. The trial judge agreed. The court held that the termination clause of the employment contract contravened the ESA and was therefore invalid.

The trial judge further found that s. 61(1) of the ESA was also contravened by the employer. This section of the ESA permits termination of employment without notice if the employer pays the employee an amount that he or she would have been entitled to during the notice period with benefits. The termination clause of the employment contract above specifically states that the employee would be paid salary and seems to carve out other entitlements such as pension or car allowance. As such, the trial judge held that the employee is entitled to receive a notice period based on the common law rather than the minimum of the ESA.

The Divisional Court dismissed the appeal. The Divisional Court held that the termination clause of the employment contract states “salary” would be paid to the employee and does not mention any other statutory entitlement. This would lead to the presumption that benefits would not be provided to the employee. However, even if the termination clause could be construed as ambiguous, that ambiguity must be interpreted against the party that prepared the termination clause and employment contract (in this case, the employer.)

Our thoughts

In this case, the employer was out of luck. This case also affirms the lower court decisions of Wright v. Young and Rubicam Group of Companies 2011 ONSC 4720 and Stevens v. Sifton Properties Ltd. 2012 ONSC 5508.

The bottom line is that termination clauses in employment contracts must ensure that all the basic rights and entitlements including benefits under the ESA are clearly met in the wording of those employment contracts or risk the termination clause being declared invalid by a judge. Any ambiguity will be interpreted against the party that prepared the employment contract, which is almost always the employer.

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