Unlike the U.S., Canada does not have employment “at will”; rather the employment relationship is contractual and employees are entitled to reasonable notice of termination or damages in lieu. As a result, Canadian employers often use severance provisions in employment contracts to limit costs associated with terminating employees.

But, those who have been following our earlier updates and webinars know that Canadian judges have been creatively construing severance clauses in employment contracts, including severance clauses which only offer the basic statutory notice and severance. If the judge determines that somehow the clause amounts to an attempt to contract out of minimum employment standards legislation, the clause will be struck down, and the more generous judge-made common law rules substituted for the contract’s clause. 

Prudent employers will want to reassess their contractual severance clauses in light of the new jurisprudence: solid written employment agreements help avoid costly and protracted severance litigation with former employees. Employers may also seize the opportunity to address other contractual risk mitigation strategies, including the preservation of business confidential information, customer privacy protections, and enhancing the ability to introduce workplace changes without threats of constructive dismissal claims.