A recent Ontario Superior Court decision demonstrates that it remains possible for employers to insert enforceable termination clauses in employment contracts.
For some five years now, a host of decisions have struck down as unenforceable termination clauses that purport to displace employees’ right to reasonable notice or pay in lieu thereof. Almost always, the basis for these rulings is that the impugned clause offends the province’s Employment Standards Act by undermining its minimum requirements for employees’ entitlement on termination.
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Datastealth employed Gavin Bertsch for slightly more than eight months before the company terminated him without cause. Although Bertsch received a termination package that exceeded his minimum entitlements under the ESA, he wasn’t satisfied and sued for wrongful dismissal, claiming damages based on reasonable notice.
But Bertsch’s employment agreement contained a termination clause, which stated if his employment was terminated with or without cause, he would be provided with only the minimum payments and entitlements, if any, owed to him under the ESA.
The clause also stated in accordance with the ESA, there are circumstances in which he would have no entitlement to notice of termination, termination pay, severance pay or benefit continuation and that compliance with the minimum requirements of the ESA satisfied any entitlement he may have to notice of termination or pay in lieu thereof.
It also stated if any of Bertsch’s entitlements under the agreement were, or could be, less than the minimum entitlements owed under the ESA, he would instead receive the minimum ESA entitlements.
Bertsch maintained that the clause was vague and ambiguous and didn’t properly address the ESA statutory standard for cause. But the court upheld the termination clause and dismissed Bertsch’s claim.
The clause survived because it used language that told the employee exactly what they were and what they weren’t going to get, says Julia Dales, a senior associate at Dentons Canada LLP and who wasn’t involved in the case.
“The goal for employers is to use language that’s clear enough to give employees certainty as to what will happen on termination. It’s also important to use language that does not allow for another reasonable interpretation of the clause.”
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As well, the employer avoided the trap of trying to define ‘for-cause’ termination. Employees fired for ‘cause’ as defined in the ESA can’t benefit from the legislation’s minimum requirements on termination. Instead, Datastealth chose language that referred only to circumstances in which Bertsch would have no entitlement.
“Employers who try to define ‘cause’ run the risk of formulating a definition that doesn’t comply with its meaning in the ESA,” Dales says.
Indeed, the court found the employer had a clear intent to comply with the ESA, an intent reinforced by the failsafe clause. But while the failsafe clause contributed to the court’s view of the clause as valid, employers should not expect that such provisions will, on their own, rescue otherwise dubious termination clauses. “Not all courts have had similar views about failsafe clauses,” Dales explains.