Written employment contracts can significantly reduce an employer’s liability when dismissing an employee without cause.  However, to succeed in reducing liability, employment contracts must be carefully drafted.  For example, if an employment contract provides for less than the statutory minimum entitlements that result from terminating employment, then the employer will become liable for payment in lieu of reasonable termination notice at common law—often far exceeding the statutory minimums.

Stevens v Sifton Properties Ltd, 2012 ONSC 5508 [“Sifton Properties”] illustrates the importance of ensuring your employment agreements are carefully drafted and legally informed.  In this case, the court found that the employee’s termination provision was unenforceable because it denied the employee of her right to benefits continuation during the statutory notice period.

Background

In Sifton Properties, the employee held the position of Head Golf Professional at a golf course in London, Ontario.  She had a written agreement that attempted to provide an exhaustive list of termination entitlements, stating that the Corporation could terminate her employment without cause at any time by providing the statutory minimum notice or pay in lieu of notice and severance pay.  The contract expressly provided that this exhaustive list would satisfy all claims and demands that could arise under statute or at common law as a result of her termination from employment.

After approximately three and half years of service, the employee was terminated from employment without cause. In accordance with the employment contract, the employer provided three weeks’ pay in lieu of notice, outstanding vacation and statutory holiday pay, a discretionary bonus and benefits continuation for three weeks.

The Case

The employee brought a wrongful dismissal claim against her former employer, claiming entitlement to reasonable notice at common law. The employee argued that the termination provision violated the Ontario Employment Standards Act (the “Act”) because it purported to deny her entitlement to benefits continuation during the notice period.

The Court found the termination provision to be unenforceable. The Act requires an employer to continue to make benefit plan contributions throughout the statutory notice period. The language of the contractual termination clause violated the statute because it set out an exhaustive summary of what the plaintiff was to receive upon termination—“drawing the circle” around the employee’s termination entitlements—but failing to provide for benefits continuation during the statutory notice period.

Implications

Employers operating in Ontario who “draw the circle” around employee rights and entitlements on termination should carefully review and ensure that their contractual termination clause complies with all aspects of statutory minimum standards, and in particular: (a) notice or pay in lieu, (b) benefits continuation during the notice period, (c) severance pay, if applicable, and (d) continued vacation accrual during the termination notice period. Alternatively, employers may choose to use language that limits the employee’s termination rights to “all minimum entitlements” under the applicable employment standards legislation.

Many thanks to Claire-Marie Colantuoni for her assistance in drafting this blog.