Termination Clauses: Be careful of the wording!
Written by: Antonietta F. Raviele
An employee can be terminated in one of two ways. First, an employee can be terminated with cause or in other words, with sufficient justifiable reason, which does not require the employer to give the employee either working notice or payment in lieu of notice. The employee is thereby not provided with any time, money or a combination of both to either sort themselves out or secure other employment. Second, an employee can be terminated with the requisite notice or payment in lieu of notice where he or she has not done anything so bad as to warrant a termination with cause and therefore no notice or payment in lieu thereof. This allows the employee time to find comparable employment and it enables the employee to continue meeting his or her daily living costs.
In situations where the termination of the employee is carried out with notice, the question arises as to how much notice is required, or sufficient, in that particular employee’s circumstances. The first determination to be made is whether there is an employment contract that was entered into at the start of employment and if so, whether that contract deals with termination of employment, the circumstances that may give rise to it and how much an employee has agreed to receive upon the termination of his or her employment with the employer. It must also be determined whether the employer notified the employee that he or she had the right to consult with a lawyer and obtain independent legal advice regarding the contract, whether it complied with the law or was fair to the employee, prior to him or her signing the employment contract. Moreover, one has to consider whether the employee was given a reasonable amount of time to consult with a lawyer if he or she chose to do so, prior to signing the contract.
All of these factors are important considerations in determining to what degree the employment contract will dictate what the employer will be obligated to pay the employee upon termination, or whether the contract is a valid one and therefore applicable..
Often times, the wording in an employment contract will not comply with the law and may ultimately serve to invalidate a clause. As a result the employer will not be able to rely on that clause in the employment contract. A recent example of this can be found in a case from the Ontario Superior Court of Justice, Stevens v. Sifton Properties Ltd., 2012 ONSC 5508 (CanLii), where the Court declared a termination clause to be unenforceable owing to the absence of certain wording in the clause. In this case, the employment contract had been signed at the time of hiring. The contract contained a termination clause that referenced the Ontario Employment Standards Act being the standard for notice and/or pay in lieu of notice in situations where an employee was fired without cause. The term itself stated that, if the employee was terminated without cause, the employee would receive notice or payment in lieu of notice, and/or severance pay, in accordance with the Employment Standards Act of Ontario. Until this case, termination clauses such as this were commonly used by lawyers and thought to be compliant with the law. The Court accepted the argument made on the employee’s behalf that the termination clause provided for pay in lieu of notice of termination, but did not provide for continuation of benefits, which is also required under the Employment Standards Act. Although the employer did in fact continue the employee’s benefits through the notice period, it was argued and accepted that the lack of any reference in the clause to the statutorily required benefits was a breach of the Employment Standards Act and the termination clause was therefore unenforceable. In doing this, the Court was able to bypass the contract and look to the common law to determine how much notice was reasonable in the situation (the common law generally being more generous than the Employment Standards Act in this regard). In circumstances such as this, or in circumstances where there is no contract of employment, the common law is the source of information and legal guidance in terms of the appropriate amount of notice to be provided to a terminated employee.
Regardless of the situation, employees must be careful when receiving a letter of termination to ensure that what is being offered by way of notice, or pay in lieu of notice, fulfills the terms of their contract, or ensure that the termination clause in their contract complies with the law.
For employers, it is imperative that your standard contract of employment is reviewed periodically and updated as need-be, particularly in the face of an ever evolving area of law. This will not only ensure compliance, but protect the employer’s future interests.