Another Termination Clause Bites the Dust

Employers typically insert termination clauses into their employment contracts to reduce the cost of terminating employees.  As long as the termination clause provides at least the minimum notice and severance set out in the Ontario Employment Standards Act (“ESA”) a court will enforce the termination provision.  However, if the termination clause provides the employee with less notice than required by the ESA the court will strike the clause from the employment contract and award the former employee with reasonable notice of dismissal, which will typically entitle the former employee to a much longer notice period than that provided for by the termination clause.

As I have discussed before, it is truly amazing how many termination clauses in Ontario employment contracts breach the minimum standards of the ESA and, therefore, will not be enforced by a Court.  Based on my experience, I would estimate that 30% of termination clauses in current employment contracts are void.

One of the latest decisions to find that a termination clause is void is Miller v. A.B.M. Canada Inc., 2014 ONSC 4062.  The relevant portions of the termination clause are:

Subject to the provisions of applicable legislation, probationary employees may be terminated at any time without notice or cause.

Regular employees may be terminated at any time without cause upon being given the minimum period of notice prescribed by applicable legislation, or by being paid salary in lieu of such notice or as may otherwise be required by applicable legislation. [emphasis added]

Justice Glithero found that the termination clause breached the ESA writing “[b]oth Machtinger at para. 26 and s.5(1) of the ESA make any provisions that attempt to contract out of minimum employment standards, by providing for lesser benefits than those legislated as minimums,  ‘null and void’”. 

Since the termination clause provided for continuation of the plaintiff’s salary but not the employer’s contribution to the plaintiff’s pension plan or continuation of his car allowance during the statutory notice period the termination clause was found to be void. 

The plaintiff was awarded 3 months’ notice of dismissal.  He was 39 years old and was employed by the defendant as a middle manager for 17 months. 

The award of 3 months is at the lower end of the range.  In awarding this notice period Glithero J. took into account the fact that the very nature of the plaintiff’s position meant that he should have understood what he was agreeing to when he signed the employment contract.  At paragraph 51 the judge wrote:

I also take into account Mr. Miller’s evidence that he did not read the termination provisions in the contract.  He was aware of the “Termination” heading, knew what it was intended to deal with, but swears he did not read the provisions.  Had he done so, he could have voiced objection to whatever provisions he found unsatisfactory, either as to length of the notice period, or the fact that it did not call for payment of benefits during that period.  The contract terms make it clear what the employer intended.  Mr. Miller in his curriculum vitae indicated that he had experience in and had been responsible for human relations at Dieter’s.  Part of his job description with the defendant made him responsible for monitoring all legislation relevant to the organization, and specifically listed employment standards.  By signing the contract, Mr. Miller signified to the employer that he had read, and understood, and accepted the terms of the contract.  Had he in fact read what he acknowledged having read, the parties could have either negotiated their differences, or parted ways and avoided a period of employment that has been unhappy and no doubt costly for both.  In the circumstances of this case, the employee cannot escape bearing some responsibility for the fact that both parties entered into a contract which fell below ESA standards. [emphasis added]

Drafting a termination clause that is legally enforceable is not difficult.  There are many examples of termination clauses that have been found to be enforceable by the courts. 

The large number of void termination clauses appears to be the result of careless drafting.  The problem created by this carelessness is exacerbated because it is very difficult to fix the problem.  Since the employees will be entitled to reasonable notice of dismissal, the employer cannot simply have the employees sign revised employment contracts with a new termination clause.  Instead, the employer will have to provide the employees with fresh consideration to support the inclusion of the termination clause into the employment contracts and ensure that the employees are aware that they are giving up their right to reasonable notice of dismissal in exchange for the fresh consideration.