A recent decision of the Ontario Court of Appeal (ONCA) has provided clarity in the debate over the validity of termination clauses in employment contracts that are silent on continuation of benefits through the statutory notice period. In Oudin v. Centre Francophone de Toronto, 2016 ONCA 514, the ONCA enforced a termination clause that set out the notice period in case of dismissal but did not mention benefits continuation. The Oudin decision contrasts with a series of recent lower court decisions that struck down termination clauses for failing to explicitly reference benefits continuation through the notice period. See our earlier post on the lower court decisions.
At issue before the ONCA in Oudin was a termination clause that allowed the employer to dismiss the employee without cause by giving him 15 days’ notice or the minimum notice required by the Employment Standards Act (ESA).
Mr. Oudin brought a wrongful dismissal action, arguing, among other things, that the termination clause was unenforceable because it referred only to notice and was thereby an attempt to contract out of the ESA. The motion judge disagreed, 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.
The ONCA upheld the motion judge’s decision on the basis that his interpretation of the contract was entitled to deference. He had looked at the agreement in its entirety, the existing circumstances, and the intentions of the parties and found no intention to contract out of the ESA.
With the clarity provided by the Oudin decision, employers may be able to defend termination clauses that do not reference benefits continuation should they need to litigate such clauses going forward.
However, employers should nevertheless continue to exercise caution when drafting termination clauses by specifically referring to benefits continuation during the statutory notice period. Given that employment law is constantly evolving, this approach will reduce the risk and uncertainty of a litigation outcome. A failure to draft prudently may result in the employer being found liable for common law reasonable notice requirements instead of the agreed upon amount in the termination clause.