Do contracts need to specify severance conditions?

Employment contracts may not require severance conditions be specified, says Court

Employers may catch a break following an Ontario Court of Appeal decision on the drafting of enforceable termination provisions in employment contracts.

This decision – Oudin v. Centre Francophone de Toronto – discusses whether a termination clause must explicitly particularize each entitlement in relation to the Employment Standards Act, 2000 ("ESA") for it to supplant an employee's greater common law entitlements.
A number of Ontario court decisions have found employment contracts to be void when they do not refer to severance requirements or benefit continuation, in their termination clauses. When the particulars of benefits and severance are not specified it has been held that the contract covers only salary continuance – less than the scope of the ESA.
This decision of the Ontario Court of Appeal provides hope that appellate courts could use common sense when an employment contract references the ESA but fails to outline every entitlement to be continued during the statutory notice period.
The Court of appeal agreed with the employer – that the contract was not an attempt to contract out of ESA requirements.
The decision, was an appeal of a partial summary judgment from the Ontario Superior Court of Justice. Mr. Oudin commenced an action against his former employer for damages related to an alleged wrongful dismissal. The claim sought salary in lieu of common law notice, but was unsuccessful. The court found the employment contract between the parties limited Mr. Oudin's termination entitlement to the minimums provided by the ESA.
The central issue was the interpretation of the agreement’s “notice” clause in the agreement and whether a key translation from French to English – used in a court motion – was inaccurate.
The clause was interpreted to read that the employee could be terminated if provided the minimum required by the ESA; however, the correct interpretation was the relationship could be terminated by providing the minimum notice required by the ESA.
The Court of appeal agreed with the employer that the slightly different translation did not assist Mr. Oudin's argument, that the contract was an attempt to contract out of ESA requirements.
The Court of Appeal said the clause referred only to notice and was not an attempt to contract out of ESA obligations.
This decision does not overturn all of the previous jurisprudence which instructs employers to be very careful and detailed in their employment contracts. Termination clauses should specifically reference severance entitlements or risk the entire clause being unenforceable and common law.

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