Employment contracts often contain clauses limiting an employee’s entitlement upon termination to the minimum entitlements under the Employment Standards Act or any other amount the employer and employee have agreed to. However, if the clauses violate the act in any way, courts may not enforce them and the employee will then be entitled to common law reasonable notice.
The Supreme Court of Canada’s dismissal of an employee’s leave to appeal an appellate decision that upheld a termination provision was good news for employers. However, that good news appears to be short lived based on the Ontario Court of Appeal’s most recent ruling on the issue.
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In Oudin v. Centre Francophone de Toronto, the employment contract stated the employer could terminate employee without cause if it provided him with minimum notice under the Employment Standards Act. The clause didn’t specifically refer to severance or the requirement to continue benefits during the notice period. The employee argued that because the contract didn’t explicitly refer to all entitlements under the act, the agreement was void and he was entitled to common law reasonable notice.
A motion judge of the Ontario Superior Court of Justice rejected the employee’s argument, finding it wasn’t the law to look for any potential interpretation of a termination clause that might violate the act. Rather, the motion judge found the contract should be interpreted in a manner consistent with the intention of the parties, which, in this case, was to apply the act.
The decision appeared to be at odds with a number of Ontario Superior Court decisions in recent years that have found various termination provisions unenforceable for non-compliance with the Employment Standards Act. However, the Ontario Court of Appeal upheld the decision, giving deference to the motion judge’s reasoning. And the Supreme Court of Canada declined to hear a further appeal of the case.
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The case is of interest to employers because it appears to mark a departure from recent trends in the law. The case suggests an Employment Standards Act-only termination provision can be valid even if it fails to explicitly mention all of the entitlements, provided it’s clear that the intention of the parties was to limit the employee to them upon termination.
However, the Ontario Court of Appeal’s recent decision in Wood v. Fred Deeley Imports Ltd. appears to have limited the significance of the decision to some extent. In Wood, the court reversed a motion judge’s decision that found a termination clause in an employment agreement that provided greater notice than required under the Employment Standards Act was enforceable.
Like the clause at issue in Oudin, the termination clause in Wood didn’t explicitly state that the employee would receive severance or continuation of benefits as required by the act. However, unlike Oudin, the agreement in Wood contained an all-inclusive clause that stated payment of the required notice in the contract would be inclusive of all entitlements the employee had under the act.
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The all-inclusive clause contained in the Wood agreement, but missing from the one in Oudin, appears to distinguish the two decisions. In Wood, the court found the termination provision might result in termination entitlements below the minimum standards. As a result, the entire clause was void. That approach is more consistent with many Superior Court decisions that predate Oudin.
Notwithstanding the outcome in Oudin, both of these cases highlight the importance of a well-drafted termination provision in an employment contract. Where the intention is to limit the employee to Employment Standards Act-only entitlements upon termination, the employer should draft the clause carefully to reflect that intention and thereby minimize the risk of a court finding it violated the legislation.