The enforceability of termination clauses in employment contracts is always a hot-button issue in employment law disputes.
At common law, employees are entitled to reasonable notice, which is determined based on an assessment of a number of factors (age, length of service, character of employment, availability of similar employment). However, employers and employees can contract out of the common law by mutually agreeing on the amount of notice an employee will receive upon termination of their employment in an employment contract.
When drafting a termination clause, it is important to ensure that it does not provide the employee with less than the minimum entitlements set out in the applicable employment standards legislation. If the clause does provide an employee with less than their minimum entitlements, it will be deemed to be unenforceable. Without an enforceable termination clause, an employee will be entitled to common law reasonable notice.
Failed Termination Clauses
There have been countless Ontario decisions dealing with faulty termination clauses and the repercussions of their deficiencies. Recently, there have been a number of cases involving termination clauses that did not explicitly provide for benefit continuation over the statutory notice period. In Ontario, the Employment Standards Act, 2000 requires employers to continue benefits over the statutory notice period. In accordance with the cases set out below, if a termination clause does not confirm that benefits will continue for the statutory notice period, it may be unenforceable.
For example, in Stevens v. Sifton Properties the court held that the failure to include a statement in the termination clause that the employee’s benefits would continue during the statutory notice period rendered the termination clause unenforceable. Then, in the court’s 2016 decision in Oudin v Centre Francophone de Toronto the court upheld a termination clause which did not address benefits, finding that there was no intention by the parties in contract out of the Employment Standards Act, 2000.
In early 2017, the Ontario Court of Appeal released its decision in Wood v Fred Deeley Imports Ltd (“Wood”), which also addressed the enforceability of a termination clause that did not explicitly provide for benefits during the statutory notice period. In Wood, the Court of Appeal confirmed that termination clauses that do not expressly provide for benefit continuation during the statutory notice period are unenforceable. The Court of Appeal also confirmed that the fact that the employer continued the employee’s benefits during the notice period did not save the deficient contractual clause.
If an employer fails to draft a termination clause in a manner that ensures an employee will receive at least their minimum entitlements under the applicable employment standards legislation, the clause will not be enforceable and employees will be entitled to common law notice.