In an earlier post, we wrote about a December 2015 decision of the Ontario Superior Court of Justice, Oudin v. Centre Francophone de Toronto (“Oudin”), where the court upheld a termination provision that limited an employee’s entitlements to the minimums set out in the Employment Standards Act, 2000 (the “ESA”). This decision was of particular interest to employers because the termination provision was argued to be an attempt to contract out of the ESA by failing to reference the continuation of benefits during the notice period and failing to reference the payment of severance pay. In a series of recent decisions, the court has struck down termination provisions which attempt to contract out of the ESA or which appear to provide for less than statutorily required minimum entitlements. In Oudin, the lower court upheld an arguably defective provision based on the intentions of the parties and the severability provision in the agreement.
The Plaintiff appealed, and on June 28, 2016, the Ontario Court of Appeal upheld the lower court’s decision. Does the Court of Appeal’s decision in Oudin indicate that the tide is turning in favour of employers? As the analysis below indicates, while this decision appears to favour employers, the law on the enforceability of termination provisions in employment contracts continues to place employers in muddy waters.
In Oudin, the termination clause in issue was translated from French to English and provided that the employer may terminate the agreement 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.” The trial judge relied, in part, on the curative language contained in the severability provision, which provided that any provision that was invalid by virtue of law could be “modified” to the extent necessary in order to make the provision compliant.
The lower court also found that above all else, the first task of contractual interpretation is to ascertain the “objective intention of the parties”, which can be done by considering the language used by the parties in the context in which it is found. The lower court found that the proper objective of contractual interpretation is to find commonly agreed upon obligations, not to determine a means of avoiding the contract because one party finds it less generous than desired. In this case, the court noted that the employee was a well-educated individual and this situation did not reflect any disparity in bargaining power.
The Ontario Court of Appeal
On appeal, the employee argued that the lower court erred in translating the termination provision from French to English and that the termination provision did attempt to contract out of the ESA by referencing only notice and not severance pay under the ESA. The Ontario Court of Appeal released a very brief decision that confirmed that the lower court had mistranslated the termination provision, but found that this was of no consequence as the lower court had clearly considered this issue. The Court of Appeal stated that the judge’s decision was based on his interpretation of the contract and noted that “he considered the circumstances of parties, the words of the agreement as a whole and the legal obligations between the parties.” The Court of Appeal restated the conclusion of the lower court as follows:
Contracts are to be interpreted in their context and I can find no basis to interpret this employment agreement in a way that neither party reasonably expected it would be interpreted when they entered into it. There was no intent to contract out of the ESA in fact; to the contrary, the intent to apply the ESA is manifest.
Ultimately, the Ontario Court of Appeal found that the lower court’s interpretation of the contract was entitled to deference and dismissed the appeal.
Commentary and Take-Away Points for Employers
Unfortunately, this conclusion does little to resolve the many conflicting cases on the enforceability of ESA minimum termination clauses. For example, in recent years, the courts have struck down termination clauses that fail to make specific reference to the payment of benefits during the statutory notice period or that provide for a fixed notice period where this period could be less than the statutory minimum.
In Oudin, the lower court cured the defects in the termination provision by applying the severability clause. The Court of Appeal did not comment on this aspect of the decision. It remains to be seen as to whether this decision will be appealed to the Supreme Court of Canada. This is an area of the law that would benefit from an appellate level decision to clarify the law on the enforceability of termination provisions.
The decision in Oudin may be interpreted as a signal that the tide is turning in favour of employers with respect to the interpretation of termination provisions in employment contracts. The Oudin decisions suggests that the courts are moving away from a highly technical approach to the interpretation of termination clauses to an approach that recognizes the intention of the parties and considers the entire agreement, as well as the overall circumstances of the case.
That said, this is an area of the law that remains unsettled. Employers are still wise to seek experienced counsel to assist with the drafting of carefully worded and enforceable termination provisions. Employers are also wise to ensure that their employment contracts are consistent with, and perhaps somewhat better than, statutorily required minimum entitlements.