The Civil Code of Québec provides that a party to a contract of employment with an indeterminate term may terminate it by giving notice of termination or, in the case of the employer, pay in lieu of notice to the other party.[1]

The notice of termination or the pay in lieu of notice must be reasonable and must take into account well known factors such as the nature of the employment, the duration of the period of work and the employee’s age.[2]

The obligation to give reasonable notice applies to both the employer and the employee. However, the Civil Code of Québec provides an additional protection for employees in Article 2092, which states that “the employee may not renounce his right to obtain compensation for any injury he suffers where insufficient notice of termination is given or where the manner of resiliation is abusive.” Therefore, the employee’s right to reasonable notice of termination or pay in lieu of notice is a matter of public order and the courts have refused to endorse notice periods agreed to by employees in contracts of employment on the basis that pursuant to Article 2092 C.C.Q. such a waiver cannot be set up against an employee.

Does this mean that a notice of termination agreed to by an employee in a transaction freely entered into upon termination is reviewable? And can termination agreements between employers and employees pursuant to which employees receive pay in lieu of notice be reviewed by the courts? Until now, there were two apparently contradictory trends in the decisions of the Superior Court. Some judges were of the opinion that Article 2092 C.C.Q. automatically made a transaction reviewable by the court.[3] In such cases, regardless of the termination agreement entered into between the employer and the employee, the courts deemed that they could always review the transaction and order the employer to pay more. Other judges were of the view that the courts should only intervene in cases where the amount paid was abusive.[4]

Until recently, employers were in a difficult, almost intolerable, position since they could never be certain that a former employee would not sue for additional sums, even when a transaction had been entered into and severance had been paid to the employee.

This uncertainty seems to have been resolved recently in Betanzos c. Premium Sound ‘N’ Picture inc.[5] in which the Court of Appeal interpreted Article 2092 C.C.Q as well as the rights it creates. In this case, the employer and the employee had agreed on severance pay of $25,800 pursuant to a transaction entered into after the employee’s dismissal. However, the employee, relying on the case law mentioned above, which concluded that such a transaction could not be set up against the employee, sued the employer for an additional sum of $81,700 on the ground that he had been dismissed without a serious reason.

The trial judge had held that the employee’s dismissal was justified and that the parties had agreed on a transaction including the amount of severance pay. She further held that the employee’s action was ill founded and that the employee had acted in bad faith by not respecting the transaction he had entered into. Given this last conclusion, the trial judge maintained the employer’s counterclaim and ordered the employee to reimburse the employer the $25,800 in severance pay already paid. The employee appealed, submitting, once again, his interpretation of Article 2092 C.C.Q to the effect that the transaction that he had himself entered into could not be set up against him and that he was therefore entitled to additional pay of $81,700.

The Court of Appeal dismissed this argument on the basis that the transaction entered into was perfectly valid, but held that the issue was whether the protection set forth in Article 2092 C.C.Q was a matter of protective public order or directive public order. The distinction is an important one, since only a clause that contravenes directive public order is absolutely null and cannot be confirmed. On the other hand, it is possible to waive a right derived from protective public order after the right is acquired, but not before. Thus, according to the Court of Appeal, Article 2092 C.C.Q. only prevents the premature waiver of reasonable notice of termination or pay in lieu of notice. Since in this case the transaction, including the waiver of an amount greater than $25,800, had been agreed to after the termination of employment, it could no longer be contested.

The Court of Appeal also reversed the part of the judgment in first instance ordering the employee to reimburse the severance pay on the ground that a transaction has, between the parties, the authority of a final judgment[6] and must therefore be given full effect; the employee’s action did not cancel the transaction.

Interestingly enough, the Court of Appeal did not set aside or cite the contrary authority of the Superior Court. However, a decision of the Court of Appeal clearly establishing the interpretation of Article 2092 C.C.Q should be accepted as authoritative and allow employers to enter into transactions with complete peace of mind while allowing employees to understand that a termination agreement is definitive, in particular with respect to pay in lieu of notice. Such agreements will no longer be able to be contested before the courts, as long as the parties have entered into them freely.