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A recent decision from the Ontario Court of Appeal emphasizes the importance of using clear termination clauses in restricting an employee’s notice or termination pay, says Toronto employment lawyer Stephen Moreau.
In Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158 (CanLII), the appeal court ruled a termination clause was not legally enforceable because it allowed the company to contract out of employment standards despite substituting an apparently greater employee benefit. It meant that the appellant, who had worked at Deeley for a little more than eight years, was entitled to nine months’ notice rather than the two weeks’ notice for every year worked, as outlined in her employment contract.
“This case is a reaffirmation that taking benefits away from people — or having them sign a contract that isn’t completely clear — is a problem that is remedied by favouring the employee with the full common-law entitlement they would normally get,” says Moreau, partner with Cavalluzzo LLP, who was not involved in the case and comments generally.
“The appellate court was clear that a nearly good enough clause just isn’t good enough,” he says.
Commonly used clause
Moreau adds the termination clause in this worker’s contract is one that is commonly used, but before this point had not made it to the Court of Appeal.
In addition to providing two weeks’ notice or termination pay for every year of employment, the clause noted the company would not “be obliged to make any payments to you other than those provided for in this paragraph.” It also noted the payments and notice provided “are inclusive of your entitlements to notice, pay in lieu of notice and severance pay pursuant to the Employment Standards Act, 2000.
The employer paid the worker salary and benefits for 13 weeks of working notice, plus a lump sum equal to eight weeks’ pay.
However, as the court ruled, the termination clause violated the Act because it excluded the company’s obligation pay severance and to continue the employee’s benefits during the notice period.
Moreau says the ruling is important because many employees don’t understand what they may be forgoing when signing such contracts.
“They don’t know these little clauses in their agreement are telling them they’re giving up a great deal,” he says. “They’re being let go, they’re trying to find new work and they don’t have the cushion of payments and benefits from their old employer to protect them during their break in employment.”
If employers do choose to use such clauses, this decision highlights the importance of using very clear language, he says.
“The clause should be strongly-worded with no doubt, and should not purport to take away from the employee their right to what they would normally receive under common-law,” he says. “When employers put these clauses in contracts, you want to make sure the employee has consented to that.”
More responsibility on employers
Moreau says he would like to see the courts go even further to put more responsibility on employers to ensure their staff are fully aware of what they are agreeing to when signing contracts.
“They should be really upfront with employees,” he says. “To me, that’s where the law needs to move.”
If termination clauses only need to be “good enough,” he adds, it leaves some uncertainty in future decisions.
“Employers are putting these clauses in quite deliberately, and the employee is vulnerable to that because they don’t know what they’re signing,” Moreau says.
“We have to come to grips with the realities of the situation. When someone loses their job, it’s a devastating event, and there’s a legal right to common-law notice — that’s an important right that should not be easily waived.”
