The most valuable clause in an employment contract. What is a termination provision?

Rachel, March 18, 2019

The most valuable provision in an employment contract is without a doubt the termination provision. The goal of a termination clause is to avoid the very significant cost of common law notice by fixing the termination entitlement at the outset. However, employers do not have free reign when it comes to the termination clauses in their contracts. A contract must provide at least the minimum termination entitlements under the applicable employment standards legislation in order to be enforceable, otherwise the entire clause is void. Under the Ontario Employment Standards Act, 2000 (“ESA”), those entitlements include a minimum period of notice of termination, severance pay (if applicable), benefit continuation and vacation over the notice period.

In recent years, termination clauses have been under intense scrutiny by the courts. Generally, if the court finds any trace of ambiguity, the clause is deemed unenforceable and the employee is awarded reasonable notice under the common law. In fact, it was starting to seem as though the courts would find any reason to void a statutory termination provision as a way to award an enhanced package to terminated employees. However, in the recent decision of Burton v. Aronovitch McCauley Rollo LLP, the Ontario Court resisted this trend by upholding a statutory termination clause. The clause in question reads:

(a) AMR may, at its sole discretion, terminate your employment without cause (a “Non-Cause Termination”). In the event of a Non-Cause Termination, AMR shall provide you with severance pay in accordance with the Employment Standards Act, as amended, and any successor legislation, if so required as at the time of a Non-Cause Termination; and

(b) Notwithstanding the foregoing, and for greater certainty, if the amounts which you would receive upon a Non-Cause Termination, as set out above, are less than the amounts to which you would be entitled under the Employment Standards Act, as amended or any successor legislation, then you shall be entitled to notice, severance pay, and any other payment required by the relevant legislation in force as at the time of the termination.

The employee in this case argued that the termination clause was unenforceable since it did not explicitly provide for the continuation of benefits over the notice period. which is required under the ESA. The failure to provide for the continuation of benefits had been used a number times in recent years to overturn statutory termination provisions. After reviewing the recent cases on this point, the court rejected the employees argument and found that the provision was enforceable. The court notes that the clause provided all statutory notice, severance, “and any other payment required by the relevant legislation.” The court found that this catch all included the continuation of benefit premiums over the notice period.

This case demonstrates that employers can rely on statutory termination provisions as long as they are carefully drafted to ensure compliance with the legislation. In light of the evolving case law in this area, we recommend that employers have their termination clauses periodically reviewed to ensure continue compliance with the law and protection from significant common law exposure.

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