Enforceability of termination clause found to be inconsistent

As confusion over the enforceability of termination clauses results in a great deal of litigation, the Supreme Court of Canada needs to step in and provide long-awaited clarity on the issue, Toronto employment lawyer Stephen Moreau tells Law Times.

Moreau, partner with Cavalluzzo Shilton McIntyre Cornish LLP, represented the plaintiff in Oudin v. Centre Francophone de Toronto before the Court of Appeal for Ontario, which recently upheld a decision to enforce the faulty termination provision in Oudin’s contract, holding his entitlements to the statutory minimums under the Employment Standards Act (ESA).

Oudin is seeking leave to appeal the decision to the Supreme Court of Canada.

As part of the application for leave, Moreau says he has studied close to 100 cases that tacked the enforceability of termination clauses since the Supreme Court last weighed in on the issue in 1992.

Law Times reports that he found that in just more than 50 of the cases, the judge voided the clause, while in just less than 50, the judge came to the opposite conclusion and upheld the clause.

Situation ‘screams out for attention’

“When you have that many cases in a 25-year period and the results are split almost down the middle, that just screams out for attention,” Moreau says.

“The case law is all over the map on whether these termination provisions are supposed to be interpreted generously or strictly, which makes it nearly impossible to give advice to employees or employers about the enforceability of these clauses. It makes things complicated, and it promotes a great deal of litigation, which is not good for anyone,” he adds.

As Law Times reports, the appeal court’s decision in Oudin upheld a decision by Ontario Superior Court Justice Sean Dunphy “that appeared to go against a recent line of cases where termination clauses were voided for failing to explicitly state that severance entitlements and benefits continuation will be provided according to the ESA.”

Although the Centre Francophone de Toronto committed to provide Oudin with only the notice period prescribed by the ESA, Dunphy used a severability provision to cure the defects, based on the intentions of both parties, says the article.

“There was no intent to contract out of the ESA in fact; to the contrary, the intent to apply the ESA is manifest,” Dunphy wrote in his Oct. 2015 decision.

The appeal court focused on Dunphy’s framing of the case as a contractual interpretation issue, the article notes.

“The motion judge’s decision was based on his interpretation of a contract. He considered the circumstances of parties, the words of the agreement as a whole and the legal obligations between the parties,” the panel wrote.

Disappointed with appeal court decision

Moreau says he and his client were “very disappointed” with the appeal court decision, and calls the result “untenable.”

Under the common law, he says, Oudin, a 13-year employee who was 68 at the time of his termination, would have received more than a year of pay and benefits.

But under the ESA, he was entitled to just 21 weeks’ pay and eight weeks of benefits.

“To suddenly be told in two months you could have no health coverage, for someone in their late 60s, that can be quite devastating,” says Moreau.

As Moreau explains, termination clauses need to meet a high bar for enforcement due to the significant gap between entitlements under the ESA compared with the common law.

“It should require a clause that is very clear, and that an average layperson could understand,” he says.

“It’s hard enough for a layperson to understand the effect of a termination clause without having to read a partially defective clause in the light of a further generic savings clause. For him to give up a year of benefits for that clause is a result that I find untenable,” Moreau adds.