Another termination clause bites the dust in superior court

The latest clause to meet an untimely demise fell short in two respects

Another termination clause bites the dust in superior court

CCP has blogged on numerous cases in the last few years where judges have struck down termination clauses in employment agreements for failing to meet the minimum obligations set out in the Employment Standards Act, 2000 (“ESA”). The latest clause to meet an untimely demise fell short in two respects for its treatment of group insurance benefits during the notice period.

In Cormier v. St. Joseph Communications, the Court was asked to consider the enforceability of the following termination provision:

(a) The Company may terminate your employment at its sole discretion, at any time for any reason, without cause, upon providing you the minimum notice, pay in lieu of notice and/or severance pay required by the Ontario Employment Standards Act, 2000, as amended from time to time. You will have no other entitlement to notice of termination, pay in lieu of such notice, and/or severance pay.

(b) In addition to the foregoing and subject to the consent of the Company's insurers, you will be entitled to continue to receive Company benefits (excluding STD and LTD benefits) during the notice period specified above.

The decision to provide actual notice of termination or pay in lieu of such notice or any combination thereof shall be in the sole discretion of the Company. Pay in lieu will be subject to all required tax withholdings and statutory decisions and will be provided by way of salary continuation as per our regular payroll.

These payments are all inclusive of all amounts owing to you under the Ontario Employment Standards Act or other applicable legislation. Your receipt of any payments is conditional upon your signing the Company’s form of Release.

Not surprisingly, and relying on the Court of Appeal decision in Wood v. Fred Deeley, the Court found that the clause permitted the Company to provide the plaintiff with only some of the employee benefits that she received prior to her dismissal, which contravened the ESA and provided the plaintiff with a lessor right than her statutory entitlements. More troubling though is the court’s concern with the language in the termination provision which indicated that even the benefits that the Company was agreeing to provide were “subject to the consent of the Company’s insurer”. We would suggest that this language is common in termination provisions since it is the insurer and not the employer that provides the actual group insurance benefits. For many years some insurers would refuse to continue long term disability benefits if an employee was paid statutory termination pay rather than given actual working notice during the ESA notice period so the language in question was inserted to protect the employer in such circumstances. It is difficult to understand why that language, in of itself, would be offside in circumstances where the termination clause was in all respects compliant with the ESA (which was not the case in this decision). If the test is whether the intention of the parties to limit the employee’s entitlement to ESA minimums in a non-cause dismissal is sufficiently clear from the language, it is difficult to see how this language would render the agreement unenforceable. That said, and despite our view that this language, in of itself should not void a termination provision, the prudent advice to employers would be to consider removing this language from their termination agreements.

Also surprising is the lack of discussion about the requirement in this termination provision that the employee execute a Release in favour of the employer before receiving her statutory entitlements – something the courts have previously held will void a termination provision.

Given the trend in jurisprudence holding employers to the strictest of tests when determining the enforceability of termination provisions, it is more important than ever that employers seek legal advice before offering employees employment agreements with minimum statutory termination entitlements. The team at CCP is well versed in the law in this area and can assist employers in creating enforceable termination agreements. Click HERE for a list of team members who can guide you in the drafting and proper use of employment agreements.

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