The long search for the perfect failsafe provision in employment agreement termination clauses may be over with the Ontario Court of Appeal’s recent decision in Amberber v. IBM Canada Ltd.
“This decision is a heartening result for employers seeking to enforce termination clauses in their employment contracts,” says Jennifer Dolman, a lawyer in Osler, Hoskin & Harcourt LLP’s Toronto office, who represented IBM.
Enforcing termination clauses has long been a minefield for employers that have dismissed employees without cause. These employees are entitled to reasonable notice of their termination (or pay in lieu of notice) unless they’ve agreed to some other notice period.
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That seems simple enough, but the concern is that the contract must not in any way amount to a renunciation of the minimum standards mandated by the Employment Standards Act.
One way in which employers have tried to avoid this conundrum is by including a failsafe provision in termination clauses. Typically, failsafes provide that an employee terminated without cause will always receive at least their entitlement under the Employment Standards Act, regardless of anything else the contract says.
In this case, Noah Amberber had a written employment agreement with IBM. The contract contained a termination clause that entitled him to the greater of one month’s salary or one week of salary for every six months work to a maximum of 12 months’ salary, which expressly included all payments to which he was entitled under employment standards legislation.
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In addition, the contract featured the following failsafe provision: “In the event that the applicable provincial employment standard legislation provides you with superior entitlements upon termination of employment (statutory entitlements) than provided for in this offer of employment, IBM shall provide you with your statutory entitlements in substitution for your rights under this offer of employment.”
IBM terminated Amberber’s employment, providing working notice and paying him 18 weeks’ salary amounting to $22,675. Amberber responded by suing for wrongful dismissal. He claimed entitlement to a reasonable notice period of 16 months, or $86,000.
As Amberber saw it, the contract was unenforceable because it violated or potentially violated the minimum standards legislation.
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“This argument has been made successfully in a number of different cases recently on the basis that the formula set out in the employment contract could result in a payment that is less than the employee’s ESA entitlements,” says Lisa Talbot, a lawyer at Torys LLP.
Here, Amberber’s lawyer, Paul Willetts of Vey Willets LLP in Ottawa, argued that the failsafe provision was simply an attempt to make lawful something that was inherently unlawful.
“Amberber tried to slice and dice the termination clause, but the Court of Appeal ruled that the clause must be read as a whole and that, read in this way, it did not violate the ESA,” says Dolman. “The decision encourages a pragmatic approach to the interpretation of employment agreements that leans on general principles of contract interpretation requiring that the meaning of an agreement must be taken from its entirety.”
The decision, adds Dolman, separates “true ambiguities” from “mere difference of opinions” among lawyers.
“It is no longer acceptable for an employee to latch on to the least favourable interpretation in order to manufacture an ambiguity in an effort to invalidate an agreement,” she says. “For a true ambiguity to arise, there must be two or more interpretations that are reasonable.”
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According to Talbot, the key to the Court of Appeal’s decision was the clarity of the contract.
“This contract made it perfectly clear that if the formula for severance amounted to less than what Amberber could get applying the ESA, he would get the amount prescribed under the legislation no matter what,” she says.
Indeed, Talbot recommends that employers drafting termination clauses reproduce the wording used in Amberber.
“The failsafe IBM used met the mustard,” she says. “So don’t take any chances by departing from it.”
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