Ontario Court Finds Employment Termination Provision Limiting Notice to Specified Amounts Unenforceable Based on Failure to Expressly Exclude Entitlement to Common Law Notice

In Canada, there is a common law presumption that employment may be terminated only upon the provision of reasonable notice. However, this presumption may be rebutted if an employment contract clearly specifies some other period of notice. In the recent decision Singh v Qualified Metal Fabricators Ltd, 2016 CarswellOnt 8795, 267 ACWS (3d) 867, Stinson J. found that a provision in an employment contract that specified an employee’s entitlements upon termination was unenforceable because, among other things, it failed to expressly exclude the employee’s entitlement to reasonable notice at common law.

Background

Roy Singh had been employed by Qualified Metal Fabricators (“QMF”) for approximately four years as an assembler and spot welder when QMF terminated his employment without cause. Upon his employment termination, QMF provided Mr. Singh with four weeks’ pay in lieu of notice as well as his other minimum entitlements under the ESA in accordance with Mr. Singh’s written employment contract. Mr. Singh subsequently brought an action against QMF for, inter alia, wrongful dismissal. Mr. Singh alleged that he was entitled to reasonable notice of his employment termination and not merely the four weeks’ pay in lieu of notice required under the ESA.

Decision

At trial, QMF argued that Mr. Singh had received all of his entitlements under his employment contract and the ESA and Mr. Singh therefore had no further entitlements in respect of his employment termination. Mr. Singh argued that the employment termination clause in his employment contract was unenforceable because: (i) it did not address Mr. Singh’s common law right to reasonable notice and was therefore ambiguous with respect to that issue; and (ii) it could be construed as violating the minimum standards provided by the ESA.

Mr. Singh’s employment contract contained the following clause regarding termination of employment:

Termination:

Start date to three months: this length of service is a probationary period and the employee is not entitled to any notice or salary in lieu of notice, if the company decides, in its discretion, that your performance or suitability are unsatisfactory, or that you are unwilling or unable to properly carry out your duties.

Three months to one year – one-week notice.

One year to three years – two weeks’ notice.

Three years and over – one week notice for each year of employment to a maximum of eight weeks.

This policy shall be maintained in accordance with the Employment Standards Act.

Failure to Expressly Exclude Entitlement to Common Law Notice

Justice Stinson concluded that because the termination clause did not expressly exclude common law notice, it was “an open question whether [the termination clause] was or was not intended to override common law notice entitlement”. Accordingly, Stinson J. found that the termination clause was ambiguous and should be construed against QMF, which had drafted the employment contract.

Notably, Stinson J. expressly rejected the finding of the Court in Wood v Industrial Accident Prevention Assn, [2000] OJ No 2711 (Sup Ct) (“Wood”), in concluding that the termination clause in Mr. Singh’s employment contract was unenforceable. In Wood, the Court upheld a termination clause in an employment contract that did not expressly exclude the employee’s entitlement to reasonable notice at common law. Instead, Stinson J. endorsed the finding of Low. J. in Wright v Young & Rubicam Group of Cos, 2011 ONSC 4720, that there is “[…] no compelling reason to uphold a termination clause which the draftsman may reasonably be understood to have known was not enforceable either at all or under certain circumstances” (at para. 14).

Violation of Minimum ESA Standards

Justice Stinson also considered Mr. Singh’s argument that the termination clause was unenforceable because it could be construed as violating the minimum standards provided by the ESA. In particular, Mr. Singh asserted that the termination clause could be interpreted as: (i) providing only one week of notice to an employee who had exactly one year of service with QMF (as opposed to the two weeks required under the ESA); and (ii) providing only two weeks’ notice to an employee who had exactly three years of service with the Company (as opposed to the three weeks required under the ESA). Justice Stinson concluded that the termination clause was also ambiguous on this basis and should therefore be construed against QMF.

Justice Stinson concluded that the termination clause in Mr. Singh’s employment contract was unenforceable and Mr. Singh was therefore entitled to reasonable notice at common law. Based on Mr. Singh’s position (assembler and spot welder), age (56) and years of service with QMF (four), the Court concluded that Mr. Singh was entitled to four months’ notice at common law. The Court dismissed Mr. Singh’s additional claims for human rights and aggravated, punitive and/or moral damages.

Conclusion

This case highlights the particular pitfalls of ambiguously drafted employment contracts. Employers should be cautious when drafting contracts to ensure that such contracts clearly and unambiguously identify an employee’s entitlements upon employment termination.