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Although a recent Ontario Court of Appeal ruling resolved a narrow but important issue relating to termination clauses — by holding that a void/illegal termination clause cannot be saved by a general severability clause commonly found in contracts — it is also another example of a decision in an area of law fraught with uncertainty, Toronto employment lawyer Stephen Moreau writes in The Lawyer’s Daily.
As Moreau, a partner with Cavalluzzo LLP, explains, since the Supreme Court of Canada (SCC) laid down general principles regarding termination clauses in employment contracts in a 1992 decision — they must clearly oust the common law but not offend employment standards laws and, if they so offend, they are void, replaced by an obligation to give common law reasonable notice — “a body of jurisprudence has developed that nearly every employment lawyer will agree is at best uncertain.”
This uncertainty, he writes, “does a complete disservice to employers and employees. When we talk here of ‘uncertainty’ what we mean for the average employee is a debate about whether an employee is entitled, at one of the most difficult points in their lives, to modest provincial standards protections (notice of termination and possibly severance pay) or the robust common law of reasonable notice which the common law proudly offers (and Quebec legislatively requires).”
Minimum standards
For a 25-year service employee in Ontario, writes Moreau, minimum standards means either eight weeks or 33 weeks of pay if severance is required, coupled with eight weeks of benefits continuation, while “common law” can mean two years’ full pay and benefits.
“For a terminated employee, the difference is staggering. Termination affects their standard of living as well as their health and well-being: a different contractual interpretation in some cases means the difference between maintaining living standards and poverty,” he says.
“And, when I say that these serious consequences hang on an ‘uncertainty,’ I mean that there are cases that go either way that turn on the use of one or two words like ‘paid,’ ‘payment,’ ‘pay in lieu,’ ‘salary,’ ‘salary in lieu,’ within termination clauses that are otherwise exactly the same,” adds Moreau.
Ultimately, he says, the occasional “win” here and “loss” there “masks a harsher reality for employees and employers seeking advice on what to do at a critical time.”
Reviewed termination clauses
Of the 93 reported decisions post-the 1992 SCC ruling that have reviewed termination clauses — with some decisions awarding what the clause provides for and the others awarding common law notice because the clause was void or did not expressly exclude the common law — Moreau says 51 upheld the clause while 42 struck or ignored it for common law notice.
“The question I feel courts must ask themselves now is: what should be done? Clearly, a 50/50 outcome should be regarded as wholly unacceptable. I have argued elsewhere that this 50/50 phenomenon is the product of the frankly superficial approach to reviewing termination clauses, one that focuses on a single word (see the cases listed above) and ignores the context and broader contractual interpretation principles routinely relied on elsewhere,” he writes.
Courts have managed to develop a mature set of interpretive principles in areas such as commercial, family, insurance, consumer protection and contract law, says Moreau, who adds that employment law should embrace these principles and put this area on a more mature footing.
