Drafting a legally enforceable termination clause in an employment contract has become a challenging task. Canadian courts have repeatedly demonstrated their willingness to strike down a provision which doesn't clearly comply with all statutory obligations.
Carpenter v Brains II, Canada Inc. (PDF) is another example of the potential liability faced by employers if they do not abide by the strict letter of the law in the wording of employment contracts. While this case involved Ontario's Employment Standards Act, 2000 ("ESA"), many of the contractual and legal principles at play may apply across Canada (with necessary modification in Quebec, where its Civil Code applies).
Terminating the Employment Relationship
As mentioned in previous issues, employment standards laws in every Canadian jurisdiction contain minimum statutory requirements for notice of termination (and severance pay, in some situations). Ontario's ESA also requires that group benefits be continued during the required notice period.
An employer cannot contract out of the minimum notice or pay in lieu of notice obligations imposed by statute. Any attempt to do so will render the contractual termination clause unenforceable. If a contractual termination clause is unenforceable, the common law will imply a reasonable notice obligation (with the exception of Quebec). This common law notice obligation generally exceeds the statutory minimum.
The Termination Clause in This Case
In Carpenter,the employee worked for NexInnovations Inc ("Nex") from September 1996 to October 2007. In 2007, Nex sold part of its business to Brains II. Following the transaction, the employee worked for Brains II in a similar job, at the same location and making the same salary as she had with Nex. She was terminated without cause after about 7 years with Brains II.
Brains II gave the employee 8 weeks of working notice of termination and an additional 17.9 weeks' severance pay.
There was a termination clause in the employee's employment contract that spelled out her entitlements. It included a statement that the employee was not entitled to any other compensation upon her termination. Benefits were not provided after termination.
The employee started a law suit against Brains II alleging, among other things, that the termination clause was unenforceable
Employer Can't Contract Out of Statutory Obligations
The court agreed with the employee. It found that the termination clause provided the employee with less than her minimum statutory entitlements and was therefore null and void.
Relying on the principles enunciated in another recent Ontario court case Miller v. A.B.M. Canada Inc. (PDF), the court began by noting that remuneration was treated separately from benefits in the employment contract. The termination clause provided for salary in lieu of notice, but made no mention of entitlement to benefits being continued (as required by the ESA) if working notice were not provided.
The court found that this amounted to an attempt to exempt the employer from paying anything other than the employee's salary for the notice period, which did not comply with the ESA.
As a result, the court found the termination clause unenforceable, and proceeded to determine the employee's entitlement to notice under the more generous common law principles.
The Carpenter decision demonstrates once again the strict approach courts often take when interpreting contractual termination clauses and their readiness to find them unenforceable.
Any employer looking to define the notice period as something other than the common law reasonable period of notice must ensure that it does so in a way that does not avoid any of the employer's obligations under applicable employment standards legislation. Otherwise, any positive return that the employer is seeking by using a written employment contract may be lost.