Is your termination clause really enforceable?

It’s a contentious issue

Is your termination clause really enforceable?

Enforceable termination clauses in valid employment agreements are a key tool of employers in limiting liability to employees at the time of dismissal. We regularly recommend that employers implement contracts and assist in drafting enforceable termination clauses; however, this can be a frustrating process for employers as the courts seemingly keep moving the goal posts. Throughout the past few years we have regularly blogged on decisions at all levels of the court system addressing termination clauses – and what does and does not make them enforceable. The decision of Movati Athletic (Group) Inc v Bergeron in December 2018 provides yet another opportunity to consider this issue. In this decision, the Divisional Court reviewed a summary judgment motion finding that the termination clause was not enforceable.

In this case the termination clause was agreed by the parties to comply with the minimum standards of the Employment Standards Act, 2000 (“ESA”). This is a traditional avenue that plaintiff counsel use to challenge a termination clause. The only other way to challenge a termination clause is if the termination clause is sufficiently clear to rebut the presumption of reasonable notice at common law. This was the issue in this case.

The termination clause in dispute provided as follows:

Movati Athletic Inc. may terminate your employment without cause at any time during the term of your employment upon providing you with notice or pay in lieu of notice, and severance, if applicable, pursuant to the Employment Standards Act, 2000 and subject to the continuation of your group benefits coverage, if applicable, for the minimum period required by the Employment Standards Act, 2000 as amended from time to time.

The Divisional Court upheld the summary judgement decision and found that the above termination clause did not rebut the presumption of reasonable notice at common law. The basis for this decision was that the termination clause did not explicitly outline that the entitlements under the ESA would be the only entitlements on termination. As a result the Court found that the presumption of common law reasonably notice was not unambiguously rebutted. This is a stark reminder that employers should be very cautious in wording their termination clauses.

Although this decision is disappointing for employers, the Court did provide a road map of considerations to determine if a termination clause is enforceable. These considerations are:

  1. all contractual provisions must meet the minimum notice requirements for termination without cause set out in the ESA;
  2. there is a presumption that an employee is entitled to common law notice upon termination of employment without cause;
  3. provided minimum legislative requirements are met, an employer can enter into an agreement to contract out of the provision for reasonable notice at common law upon termination without cause;
  4. the presumption that an employee is entitled to reasonable notice at common law may be rebutted if the contract specifies some other period of notice as long as that other notice period meets or exceeds the minimum requirements in the ESA;
  5. the intention to rebut the right to reasonable notice at common law “must be clearly and unambiguously expressed” in the contractual language used by the parties;
  6. there is no need for any specific wording, however it must be clear from the language that the parties have agreed to limit the employee’s common law rights on termination;
  7. any ambiguity will be resolved in favour of the employee and against the employer who drafted the termination clause in accordance with the principle of contra proferentum; and
  8. surrounding circumstances may be considered when interpreting the terms of a contract but they must never be allowed to overwhelm the words of the agreement itself.

Termination clauses remain a valuable tool for employers to limit their liability – however, only a properly worded termination clause will meet this objective. In light of this decision, employers should careful review any existing contractual wording to ensure that the presumption of common law reasonable notice is rebutted. The lawyers at CCPartners are well versed in navigating termination clauses and can assist you in drafting effective and enforceable contracts for your business.

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