Follow the Bouncing Ball: Enforcing Termination Provisions

Written by on February 07, 2018.

Employers need some good news these days, with rising minimum wages, employee-friendly changes to many employment standards, and let’s not even mention the stock market. So I’m happy to share the decision of the Ontario Court of Appeal in Nemeth v. Hatch Ltd. in which a very simple termination provision was upheld.

Mr. Nemeth had been employed by Hatch Ltd. for just over 19 years when his employment was terminated without cause. The termination provision in his employment contract said:

The Company’s policy with respect to termination is that employment may be terminated by either party with notice in writing. The notice period shall amount to one week per year of service with a minimum of four weeks or the notice required by the applicable labour legislation.

The Company paid Mr. Nemeth eight weeks’ notice of termination and 19.42 weeks’ severance pay, plus they continued his benefit coverage for eight weeks, all of which is required by Ontario’s Employment Standards Act, 2000 (“ESA”).

It will not surprise readers who have been following this developing case law that Mr. Nemeth argued that the termination provision was not enforceable because: (a) it did not expressly exclude him from receiving his entitlements under the common law; (b) it did not refer to severance pay, thereby attempting to contract out of the ESA. He also argued in the alternative that he should have received 19 weeks of notice, as the contract provided for one week’s notice per year of service.

Relying on Machtinger v. HOJ Industries Ltd., Justice Roberts found that the Supreme Court of Canada had:

… made it very clear that the kind of specific, express language advocated by [Mr. Nemeth] is not required:

Absent considerations of unconscionability, an employer can readily make contracts with his or her employees which referentially incorporate the minimum notice periods set out in the [ESA] or otherwise take into account later changes to the [ESA] or to the employees’ notice entitlement under the [ESA]. Such contractual notice provisions would be sufficient to displace the presumption that the contract is terminable without cause only on reasonable notice. [emphasis in original]

It cannot be said that [Mr. Nemeth] retained his common law entitlements in the face of this explicit language, which denotes an intent to the opposite effect. … [T]here is no ambiguity that the parties intended and agreed to displace [his] common law notice entitlement.

However, Mr. Nemeth was partially vindicated when the Court found that he should receive 19 weeks’ notice of termination in accordance with his contract.

In summary then, Mr. Nemeth received a total of 38.42 weeks’ wages (close to nine months) plus benefit continuation for eight weeks. Most employers would find this to be an acceptable cost for the termination of a 19-year employee.

Based on this very recent decision, simpler clauses may be more enforceable. But I must end on a cautionary note.  The ever-evolving case law in this area means it is critical to regularly update your employment contracts.  Please feel free to contact anyone in Siskinds’ Labour & Employment Group when the time comes to review your contracts.