In recent years, a number of lower courts have found termination of employment provisions that purport to limit an employee’s notice and termination pay entitlements unenforceable for various reasons. For example, in light of the statutory requirement for employers to continue an employee’s benefits for the duration of the statutory notice period under the Employment Standards Act, 2000, SO 2000, c 41 (the “ESA”), some decisions have held that termination provisions in employment contracts limiting notice entitlements to ESA minimums are void if the contract does not also provide for benefit continuation during the statutory notice period, even where the employer actually did provide benefit continuation during the notice period and did not intend to provide less than the ESA minimums. As another example, termination provisions that provide for a fixed notice period have been found to be unenforceable where the fixed period could be less than the statutory minimum.
A recent decision of the Ontario Superior Court of Justice is an example of a somewhat different approach to the interpretation and enforceability of termination provisions: the decision focuses more on the intentions of the parties, and less on the technical deficiencies of the language used by the parties. In Oudin v Le Centre Francophone de Toronto, 2015 ONSC 6494 (“Oudin”), Justice Sean F. Dunphy considered the validity of a termination of employment provision in an employment agreement. The provision at issue provided as follows:
The CFT may also terminate this agreement for any other reason by giving the employee 15 days’ notice or the minimum prescribed by 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 (after deduction and/or withholding at source), in the entire discretion of CFT.
The plaintiff argued that the termination provision was unenforceable, as at least one possible interpretation of the clause is that it only provided 15 days’ notice rather than the minimum notice period under the ESA.
Justice Dunphy disagreed, stating that the purpose of contracts is to provide the parties with certainty about their relationship, and that the task of interpreting a contract freely entered into by the parties should not be approached “with the pre-determined goal of seeking objections that might be stretched into a basis for avoiding it after the fact.”
Justice Dunphy noted that the first task in contractual interpretation is to interpret the contract with a view to ascertaining the objective intention of the parties. This is done, he stated, by considering the language used by the parties in the context in which it is found. He emphasized that it is not the law to find a clause unenforceable if any potential interpretation can be posited that might in some hypothetical circumstance entail a potential violation of the ESA.
In ascertaining the objective intention of the parties, Dunphy J considered that the universal practice of the employer was to apply such a termination clause to the advantage of the employee by giving the employee the greater of the two notice periods specified. He noted that there was “no reasonable fear of an employee being tricked into believing they have no rights by an unscrupulous employer seeking to fool him or her into believing that some lesser standard was permitted”. Further, Dunphy J recognized that the plaintiff was a well-educated individual, and that the employment agreement did not represent any disparity in bargaining power. Ultimately, Dunphy J held that there was no intent to contract out of the ESA, and that in fact, the intent to apply the ESA was manifest.
Justice Dunphy further noted that, in any case, the reference to 15 days could be excised from the provision based on the severability provision in the contract. That provision provided that if any of the provisions in the agreement were legally invalid, the provision would be considered modified or nullified, but only to the extent necessary to comply with the law.
Where a termination of employment provision purporting to limit an employee’s notice entitlements is found to be unenforceable, the employee would be entitled to reasonable notice of termination under common law. In general, an individual’s common law notice entitlement is greater than his or her statutory termination entitlements.
Oudin may be a useful decision for employers who are attempting to argue the enforceability of a termination provision based on the intentions of the parties. That said, employers are well-advised to take great care in crafting a termination of employment provision that purports to limit an employee’s entitlement to the minimum requirements of the ESA, as a poorly drafted clause may not stand up to judicial scrutiny. Accordingly, employers must be careful to craft clear and enforceable termination provisions. Given the nuances in the law with respect to the enforceability of these provisions, the assistance of an employment lawyer in drafting such a provision is highly recommended.