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Employment & Labour

A change for employees and termination packages

By Nicole Simes

Under the Employment Standards Act (ESA), employees who are terminated are entitled to appropriate notice of termination, which is generally a week’s worth of notice, or pay in lieu of notice, for each year worked up to a maximum of eight weeks. Not every employee is also entitled to severance. Therefore, if you worked for a small company for twenty years, your employer might be required to give you only eight weeks of notice or pay in lieu of notice. Alternatively, the common law entitles employees to up to a month of notice, or pay in lieu of notice, for each year worked.

For this reason, many employment contracts contain a termination clause or a section that attempts to reduce the cost of terminating an employee by either introducing an alternative fixed amount or limiting what the employee can get to the bare minimums under the ESA. While termination clauses may provide you, as an employee, with security about what exactly you are entitled to should you be terminated, they are also dangerous as they can also slash the amount of money you to which you might otherwise be entitled.

Some termination clauses, however, are unenforceable: they may violate the ESA by not specifically mentioning severance pay, or be ambiguous. Because of this, many cases make their way to court.  

While the ESA outlines the minimum compensation for employees who are fired, the amount that an employee can be paid at the time of their termination can be significantly higher.  

Termination clauses have been a fiery area of employment law, and the courts have had mixed opinions on how to determine whether a termination clause is valid and lawful. In 2017, many court decisions sided with employees because they are typically the weaker bargaining partner in an employer-employee relationship. However, in this recent case, the Ontario Court of Appeal ruled in favour of the employer. This ruling sets an important precedent for judges presiding over cases where employees have taken their employer to court over potentially invalid termination clauses, and is relevant to any employee with a termination clause in their employment contract.  

The case

The former employee argued that the termination clause in his written employment agreement, which granted him 18 weeks of salary instead of the 16 months he said he was entitled to, was unenforceable because it violated the ESA minimums, because among other things it was ambiguous.

At the first level of court, the judge agreed the termination clause was indeed ambiguously worded. She decided it had been written unclearly, and therefore ruled in favour of the employee.

That decision was successfully overturned in the Court of Appeal, where the judge sided with the employer that the termination clause was clear. The appeal judge decided that, when read as a whole, the clause was decisively written. The Court of Appeal stated that the first judge “strained to find an ambiguity where none reasonably exists.”

What it all means for you

This is an incredibly dynamic area of law that is continually changing based on the decisions of judges. The best course of action is to try and change a termination clause before you sign it. That means seeing a lawyer once you have a new offer but before you start the job. It also means getting advice if your employer gives you a new contract during your employment. When an employer does this, they have likely made changes to the contract try and make the termination clause better. If you have already been terminated, with this case in mind, it is definitely in your best interest to figure out whether a termination clause is enforceable before signing off on a severance package by seeking advice.

While in the past, judges were more likely to rule in favour of employees because of their disadvantages in drafting the termination clause, it is likely that future rulings will be more critical of employees arguing against the validity of their contracts.

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