A Break for Employers on Termination Clauses
Finally! The Ontario Court of Appeal upheld a termination clause in an employment contract that did NOT reference benefit continuation (when indeed there were benefits) or severance (when the employer had a payroll of $2.5 million or more and the employee qualified for the severance payment under the Employment Standards Act, 2000 – “ESA”). As you may recall, my colleague, Mary Lou Brady blogged about the Superior Court of Justice case of Oudin v. Le Centre Francophone de Toronto back in May of this year. She highlighted how the severability clause included in that contract saved it. Well, Mr. Oudin appealed this finding to the Ontario Court of Appeal, and with a corresponding sigh of relief amongst employers in Ontario, on June 28th, the Court of Appeal found again in favour of Mr. Oudin’s former employer.
To refresh your memory – Mr. Oudin was a 13 year employee and held the position of project manager. He had a signed employment contract with termination language that read (translated):
“The CFT may terminate your employment on 15 days’ notice or the minimum notice required under the Employment Standards Act or by paying an amount of salary equal to the salary the employee would have had the right to receive during the notice period.”
The potential problems with this clause were: (1) 15 days’ notice was not compliant with his ESA entitlements, (2) he was entitled to ESA severance which was not mentioned and (3) he was entitled to benefit continuation which was not mentioned.
Many of the cases on termination clauses in the last few years took great issue with these potential issues and found similar clauses void. However, the Ontario Court of Appeal agreed with the trial judge and found that, “there was no attempt to contract out of the ESA and that the parties had agreed that the ESA would be respected” and quoted the trial judge’s conclusion that:
Contracts are to be interpreted in their context and I can find no basis to interpret this employment agreement in a way that neither party reasonably expected it would be interpreted when they entered into it. There was no intent to contract out of the ESA in fact; to the contrary, the intent to apply the ESA is manifest.
This finding by Ontario’s top court is welcome for employers and their counsel. It suggests that where the language is sufficient to show that the parties intended to limit termination entitlements to the ESA, the court will hold the parties to this agreement, despite the fact that not all of the employee’s minimum ESA entitlements are spelled out.
Of course, rather than risk a different finding, we would still suggest that you make your termination clauses as strong as possible – including listing all of the ESA entitlements upon termination, but in case something fell through the cracks, you can (at least for now) find comfort in the Oudin decision.
You can read the Court of Appeal’s full decision here.