Many in the employer community were surprised by three recent cases (here, here and here) in which the Ontario courts struck down termination clauses in employment contracts for the failure to specifically reference the continuation of benefits through the statutory notice period under the Employment Standards Act, 2000 (the “ESA“). The termination clauses in the employment contracts at issue in these cases appeared, on their face, to be valid and enforceable in light of the prevailing legal principles and existing case law.
Given the spate of recent decisions, is it a foregone conclusion that all termination clauses that fail to expressly mention benefits continuation through the statutory notice period are unenforceable? While the recent case law out of Ontario should not be ignored, the situation is not as clear as some may believe. The legal analysis and conclusions in the Ontario cases is a matter of ongoing debate and, to date, it does not appear that an appellate court in Canada has required express mention of benefits continuation as a condition of validity or enforceability of a termination clause. In fact, the appellate courts have upheld termination clauses that were, in many respects, indistinguishable from the clauses that the Ontario courts recently struck down.
Stevens v. Sifton Properties Ltd.
Where does that leave the employer community?
Let us look more critically at the issue in light of one of the recent cases: Stevens v. Sifton Properties Ltd. (“Stevens“).
In that case, the plaintiff, Deborah Stevens (“Ms. Stevens“), assumed the position of Head Golf Professional at Riverbend golf course, which was operated by Sifton Properties Ltd. (“Sifton“).
The terms and conditions of Ms. Stevens’ employment were contained in an offer letter that included the following termination clause:
(b) [Sifton] may terminate your employment without cause at any time by providing you with notice or payment in lieu of notice, and/or severance pay, in accordance with the Employment Standards Act of Ontario.
(c) You agree to accept the notice or payment in lieu of notice and/or severance pay referenced in paragraph 13(b) herein, in satisfaction of all claims and demands against the [Sifton] which may arise out of statute or common law with respect to the termination of your employment with the [Sifton].
In 2010, after approximately three and a half years of service, Ms. Stevens was terminated without cause. In addition to three weeks’ pay in lieu of termination notice, Sifton continued Ms. Stevens’ group benefits for the three-week notice period.
Shortly after her termination from employment, Ms. Stevens commenced a lawsuit claiming her employment had been wrongfully terminated. She argued that the termination clause in the offer letter was invalid and unenforceable on the basis that it permitted the employer to terminate her employment without continuing her benefits for the duration of the notice period. The ESA obligates an employer to continue benefits during the statutory notice period and any attempt to “contract out” of the ESA is null and void.
The Court found that a strict interpretation of the contractual termination provision would permit the employer to provide only “notice or payment in lieu of notice” and not benefits. It held that the failure to include the words “and benefits” (coupled with a “catch-all” provision that purported to limit an employee’s entitlement to what was specified) rendered the contractual provision null and void, entitling Ms. Stevens to reasonable notice which was far greater than her entitlement under the termination clause.
Does the decision in Stevens Make Good Sense?
In Stevens, the Court essentially held that the failure to expressly identify benefits during the notice period was fatal to the termination clause.
There are a number of bases on which the decision in Stevens can be questioned. Our focus is on the following two:
First, the decision in Stevens does not sit easily with the case law that has considered termination clauses. Courts throughout the country, including the appeal courts in Ontario and British Columbia, have upheld termination clauses that did not expressly reference benefits continuation. In fact, within months of the Stevens decision, the Ontario Court of Appeal in the Musoni v. Logitek Technology Ltd. upheld a termination provision that did not reference benefits continuation at all. At best, the lower court decisions, like Stevens, which have found that express reference to benefits are required in a termination clause, are difficult to reconcile with the higher court decisions that have not.
Second, in interpreting the term “notice of termination”, the Court in Stevens held that it expressly excluded benefits continuation. That seems problematic. While the requirement to provide notice of termination under the ESA includes a requirement to pay salary or wages, it is only one of a number of complementary statutory obligations rising out of notice of termination, including benefits continuation. An employment agreement referencing notice of termination in accordance with the ESA, by definition, incorporates the obligation to continue benefits throughout the statutory notice period. Any specific reference to benefits continuation in a termination provision that incorporates the concept of ESA notice is redundant and therefore unnecessary.
Takeaway for Employers
Employment law is constantly evolving. An employer who does not periodically re-evaluate its employment documents, may find itself with outdated and possibly unenforceable employment contracts.
That being said, if an employer finds itself in a situation where it must defend a termination clause that does not reference benefits continuation, it may be inappropriate to automatically assume the clause is not enforceable. At the very least, the termination clause should be measured against the existing case law and the specific requirements in the applicable employment standards legislation before any firm conclusion is reached. Otherwise, employers may them themselves paying hefty termination packages to employees that are more in line with common law reasonable notice that the amount they believed they agreed to in the termination clause at the outset of the employment relationship.