Last week, the Ontario Court of Appeal released yet another decision on the interpretation and enforceability of termination clauses: Amberber v. IBM Canada Ltd., 2018 ONCA 571. Recent appellate decisions on this issue have been inconsistent and/or provided less than clear guidelines, see here, here, here and here. In contrast, Amberber is a bright spot for employers. The Court not only reaffirmed the principle that termination clauses must be interpreted as a whole, but also held that courts should not strain to create an ambiguity where none exists.

Key Takeaways

Amberer is good news for employers. The Court reminds decision makers to consider the termination clause in its entirety and avoid reaching decisions based on constituent parts of the clause or interpreting the parts individually. The Court also instructs decision makers not to strain to create ambiguity.

Despite this favourable decision, employers should nonetheless continue to exercise caution in drafting termination clauses. The prerequisites of enforceability remain the same, i.e., the clause must be unequivocal, reasonable, and, at a minimum, meet the employee’s entitlements in the applicable employment standards legislation, and the employee’s entitlement to notice at common law must be displaced. Drafters should continue to avoid clauses that allow for alternate interpretations, as courts will still resolve genuine ambiguities in the employee’s favour.

To avoid these pitfalls, obtaining legal advice is strongly recommended at the drafting stage. It is also a best practice to involve legal counsel at the dismissal stage, particularly in situations where the employer intends to rely on a termination clause.

Background

Noah Amberber brought a wrongful dismissal claim against his former employer, IBM Canada Ltd., in August 2016. In April 2016, IBM had advised Mr. Amberber that his employment was being terminated without cause. At that time, he had 15 years and 6 months of combined service (IBM had agreed to recognize his service with an IBM customer for certain purposes including his entitlement at termination). IBM provided Mr. Amberber with 11 weeks of working notice and a termination payment that was the equivalent of 19.4 weeks of salary. The working notice and pay in lieu of notice when added together satisfied the entitlement under the termination clause in the parties’ employment agreement. The termination clause provided as follows:

TERMINATION OF EMPLOYMENT

If you are terminated by IBM other than for cause, IBM will provide you with notice or a separation payment in lieu of notice of termination equal to the greater of (a) one (1) month of your current annual base salary or (b) one week of your current annual base salary, for each completed six months worked from your IBM service reference date to a maximum of twelve (12) months of your annual base salary. This payment includes any and all termination notice pay, and severance payments you may be entitled to under provincial employment standards legislation and Common Law. Any separation payment will be subject to applicable statutory deductions. In addition, you will be entitled to benefit continuation for the minimum notice period under applicable provincial employment standard legislation. In the event that the applicable provincial employment standard legislation provides you with superior entitlements upon termination of employment (“statutory entitlements”) than provided for in this offer of employment, IBM shall provide you with your statutory entitlements in substitution for your rights under this offer of employment.

Motion judge’s decision

IBM brought a motion for summary judgment on the basis that Mr. Amberber’s claim for damages in lieu of common law reasonable notice was precluded by the termination clause. Mr. Amberber raised three alternative arguments to contest summary judgment: (a) the termination clause violated, or potentially violated, the Employment Standards Act, 2000 (ESA), (b) the termination clause failed to rebut the common law presumption of reasonable notice, and (c) IBM failed to comply with the requirements of the termination clause.

The motion judge rejected his first and third arguments but accepted the second. She agreed with his submission that the termination clause consisted of three parts, the “options provision”, the “inclusive payment provision”, and the “failsafe provision”, as follows:

Options Provision

If you are terminated by IBM other than for cause, IBM will provide you with notice or a separation payment in lieu of notice of termination equal to the greater of (a) one (1) month of your current annual base salary or (b) one week of your current annual base salary, for each completed six months worked from your IBM service reference date to a maximum of twelve (12) months of your annual base salary.

Inclusive Payment Provision

This payment includes any and all termination notice pay, and severance payments you may be entitled to under provincial employment standards legislation and Common Law. Any separation payment will be subject to applicable statutory deductions. In addition, you will be entitled to benefit continuation for the minimum notice period under applicable provincial employment standard legislation.

Failsafe Provision

In the event that the applicable provincial employment standard legislation provides you with superior entitlements upon termination of employment (“statutory entitlements”) than provided for in this offer of employment, IBM shall provide you with your statutory entitlements in substitution for your rights under this offer of employment.

After bifurcating the termination clause in this manner, the motion judge made the following findings:

– while it was clear that the inclusive payment provision applied to the options provision, it was not clear that the inclusive payment provision was meant to apply to the failsafe provision;

–  the failsafe provision, when read on its own, did not rebut the common law presumption of reasonable notice; and

– the ambiguity must be construed against the employer.

On the basis of these findings, the motion judge held that the termination clause failed to rebut the common law presumption of reasonable notice. She dismissed the motion and remained seized of the issues of the applicable reasonable notice period and damages. IBM appealed the motion judge’s decision.

Court of Appeal’s decision

The Court overturned the motion judge’s decision. The Court confirmed certain established principles for interpreting employment agreements, as follows:

1) employment agreements are to be interpreted somewhat differently from other contracts because employees usually have less bargaining power than employers;

2) where an employment contract is prepared by the employer on a more or less take-it-or-leave-it basis, an ambiguity in the contract’s terms should be interpreted in the employee’s favour ‒ this is known as the contra proferentem rule; and

3) the contra proferentem rule applies only where there is a genuine ambiguity.

The Court stated that a termination clause must be read as a whole and not piecemeal, citing in support of this proposition, the Court’s 2007 decision in Dumbrell v. The Regional Group of Companies Inc. and the Supreme Court of Canada’s 1993 decision in BG Checo International Ltd. v. British Columbia Hydro and Power Authority. The Court found that the motion judge interpreted the individual sentences of the termination clause on their own and in doing so she disregarded accepted principles of contract interpretation.

The Court also cited its 1997 decision in Chilton v. Co-Operators General Insurance Co., for the proposition that the court should not strain to create an ambiguity where none exists. The Court found that the motion judge gave the clause a strained and unreasonable interpretation in finding that the “inclusive payment provision” applied to only one part of the clause, but not the other.

Mr. Amberer had argued that the motion judge’s interpretation was reviewable on a standard of palpable and overriding error, unless an extricable question of law is identified. In the Court’s view, the motion judge committed extricable errors of law reviewable on a correctness standard.

The Court ruled that IBM complied with the termination clause and the ESA. The Court allowed the appeal and dismissed the wrongful dismissal action. Incidentally, the Court awarded IBM the agreed costs of the appeal, and costs of the motion (reversing the motion judge’s order for costs).