Costly error: Bank found liable for common law reasonable notice, annual bonuses
In employment contracts, the instinct to provide clarity and detail in termination provisions can backfire dramatically.
That’s what happened to the Canadian Imperial Bank of Commerce (CIBC) when an Ontario court determined that the termination provisions of two dismissed employees were unenforceable, leaving the bank liable for common law reasonable notice and annual bonuses.
For senior HR leaders and in-house counsel crafting employment contracts, the decision offers both a cautionary tale on how courts across Canada are increasingly willing to strike down termination provisions that fail to meet evolving legal standards around clarity and enforceability, according to Charles Millar, an employment lawyer at Achkar Law in Toronto.
The case involved two mobile investment consultants in CIBC's retail banking operation. In September 2022, both workers were given notice that their employment would be terminated effective Oct. 7. The first worker was 54 years old with 5.5 years of service and the second worker was 38 with 4.5 years of service.
CIBC provided four weeks of working notice plus statutory severance payments under the Canada Labour Code (CLC), believing it had fully satisfied its legal obligations. Both workers sued for wrongful dismissal, arguing that they were entitled to common law notice of termination because the termination clauses in their employment contracts — which were the same for both — were unenforceable because both the “for cause” termination provision and the “without cause” termination provision in their contracts violated the minimum standards under the CLC.
Termination provision challenged
The for cause provision stated that CIBC could terminate the workers’ employment “at any time” without notice or pay in lieu of notice for cause. It also defined cause as including “but is not limited to” several examples of misconduct. The without cause provision purported to allow the bank to terminate their employment without cause “at any time” by providing two weeks’ notice or pay in lieu of notice for each completed year of service, if they signed a “full and final release in a form satisfactory to CIBC,” with a minimum of three weeks pay or notice and a maximum of 18 months. A failure to sign a release would entitle the workers to statutory minimums.
The court found that the termination provisions were both unenforceable and didn’t rebut the common law presumption of reasonable notice.
The court determined that the “for cause” provision was ambiguous and defined cause more broadly than the interpretation of just cause under the CLC. The provision included acts that may not constitute just cause, and its open-ended language created uncertainty for employees regarding their statutory entitlements.
The court found that by listing specific acts like “dishonesty” or “breach of any other term,” CIBC created ambiguity about what truly constitutes just cause” under CLC. Not every act of dishonesty amounts to just cause — context matters, said the court. In addition, CIBC’s list included the phrase “but is not limited to” the list of examples, creating a “non-exhaustive list,” the court said.
Millar points out a strategic problem with the approach of trying to define just cause in a termination provision. “The idea is that less is more - don't try to pull out a whole list,” he says.
Ambiguity spells end for termination clause
In CIBC’s case, the bank created ambiguity by providing a list of actions that could lead to cause for dismissal while some of them wouldn’t be legally.
“[CIBC] created ambiguity, and they even created a bold-faced lie because some of those things wouldn't be cause,” says Millar.
Regarding the without cause provision, the court noted that while it wasn’t necessary to decide its enforceability due to its finding on the for cause provision, the language allowing termination “at any time” was potentially problematic under the CLC.
When courts assess just cause, they don’t refer to specific examples of misconduct but rather use general principles, according to Millar. “The reason why [courts] talk about it generally is because for a just cause termination, context matters — an act of misconduct such as dishonesty in one moment could be just cause and in another moment, not just cause.”
Millar comes back to the “less is more” approach in termination clauses and avoiding lists of specific things that could get someone fired for just cause. “The idea is what’s considered just cause at common law and in the CLC.”
No checklist for just cause
Employers must also eliminate problematic language like “at any time,” “for any reason,” and “including but not limited to,” says Millar, noting that the CLC imposes stronger protections than provincial employment standards legislation. Under the CLC, there must be a valid reason for termination — an employee can’t be terminated simply “at any time.”
Millar adds that employers must understand that termination context is complex and can’t be simplified into a contractual checklist. When drafting, the strategy should be to commit to established legal principles rather than attempting to predetermine outcomes, he says.
CIBC argued that the termination clause had saving provision that stated it would comply with all requirements of applicable employment standards legislation, and that if the termination provisions breached the CLC, statutory minimums would apply. The court disagreed that this provision could save the contract’s enforceability, noting that allowing it to be saved wouldn’t provide any incentive for employers to comply with the CLC to begin with.
“It is one thing to draft a termination provision which complies with the statutory minimum requirements and contains a provision that incorporates future statutory amendments, it is quite another to attempt to save a termination provision which violates the statutory requirements,” said the court.
Performance bonus during notice period
CIBC's employment agreements also stated that employees weren’t eligible for annual bonuses if they were terminated, whether for or without cause, and they had to be actively employed when the bonus was paid. However, the court found that the notice period owed to each employee would have made each actively employed when bonuses were paid if proper notice had been given, and there was no evidence of any language in the bonus plans specifically disentitling them.
“Employers should be very cautious about terminating employees before an annual bonus is awarded,” says Millar. “It's typically only the bonuses that are purely discretionary to which dismissed employees aren’t entitled, but for performance-based bonuses, you can always expect a fight.”
The court ordered CIBC to pay the first worker 12 months’ pay in lieu of notice plus nearly $100,000 for her annual 2022 performance bonus, and the second worker seven months’ pay plus more than $62,000 for his annual performance bonus for 2022.
Millar highlights the significant amount of notice awarded to the workers — 12 months to the first worker for five-and-a-half years of service and seven months to the second worker for a year less than that. This is of particular concern for banks and others in the financial industry, says Millar, noting that the court pointed out that both employees were commissioned sales professionals whose compensation depended significantly on building client relationships — a “book of business” — and neither could take their clients with them due to restrictive covenants.
“If you have people who don't have a portable book of business, courts are going to look at them from the ground up, and that's going to really influence the damages,” he says.
Additionally, the court pointed out that the first worker’s education was limited to a high school diploma, restricting her access to certain positions, and both workers faced a difficult labour market and would struggle to find comparable employment.
The changing standard for termination provisions
For senior HR leaders and in-house counsel, the practical message is to update termination provisions now, before litigation forces change, and use language that keeps it simple references the legal standard for just cause, says Millar.
“I truly hope that, as we're listening to the courts and we’re drafting new employment contracts, we will get that direction of having an enforceable termination provision,” he says. “Because a lot of companies are drafting contracts because they want people to know, ‘If you work for me, this is what you're entitled to — you won't get anything less.’”
